Purchasing, Inventory, and Cash Disbursements

Purchasing and cash disbursements are common targets for fraud in any entity's environment. Today, many practitioners, auditors, and management in industry are aware of the criticality of adequate internal controls, but may be uncertain whether existing controls in their organizations are adequate. It is important to understand common frauds and internal controls over the purchasing and cash disbursement cycle.

Topics discussed include:

• The acquisitions cycle: ordering, receiving, and warehousing
• Cash disbursements cycle
• Payroll and expense reimbursement frauds
• External auditing and forensic investigations: conceptual and procedural differences
• Controls and design

Chapter 1 The Acquisitions Cycle: Ordering, Receiving, and Warehousing   1-1

The Acquisitions Cycle   1-2

Ordering  1-3

Receiving and Warehousing   1-7

Variations of the Typical Acquisitions Cycle   1-10

Manufacturing Environment   1-11

Retail Environment   1-12

Services  1-13

Smaller Entity  1-14

Internal Controls in the Ordering, Receiving, and Warehousing Processes  1-15

Errors, Fraud, and Controls   1-17

Control Matrix   1-20

Summary   1-23

Practice Questions   1-24

Chapter 2 Cash Disbursements Cycle   2-1

Cash Disbursements   2-2

Typical Cash Disbursements System  2-3

Internal Controls in the Example Retail System  2-10

Errors, Fraud, and Controls   2-12

Control Matrix   2-17

Services   2-18

Electronic Data Interchange (EDI) Overview   2-19

Cash Disbursements Fraud Statistics   2-20

Cash Disbursement Frauds Other Than Billing   2-22

Cash Register Disbursement Frauds and Theft of Cash on Hand  2-26

Summary   2-27

Practice Questions   2-28

Chapter 3 Payroll and Expense Reimbursement Cycles   3-1

Payroll System  3-3

Internal Controls in the Example Payroll System  3-9

Additional Payroll System Controls  3-11

Control Matrix   3-15

Other Compensation Methods   3-16

Other Payroll Compensation Issues   3-17

Summary   3-21

Chapter 4 External Auditing and Forensic Investigations: Conceptual and Procedural Differences   4-1

Overview   4-2

Differences Between External Audit and Forensic Procedures and Principles   4-4

Summary  4-9

Glossary

Index

Solutions

Chapter 1  Solutions 1

Chapter 2  Solutions 3

Chapter 3  Solutions 6

Chapter 4  Solutions 7

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