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Functions in the Purchasing Process and how to Segregate Purchasing Duties

i) Requisition

- An authorized individual makes a request for the required good/Service within his/her authorization limit via a purchase requisition

- Each company should have a policy, which requires different levels of authorization for different dollar values of purchases (higher dollar purchases should require higher level of approval).

ii) Purchasing

Purchases are coordinated through the purchasing department to ensure goods are acquired in the right quantities at the lowest possible prices and documented on the Purchase order

iii) Receiving

Responsible for receiving counting and inspecting goods from venders as documented on the receiving report

iv) Invoice Processing

AP department processes the invoices by recording the asset/expense/ liability- A/P obligations are recorded when the purchaser receives the goods or services ordered.

This department matches the PO to the receiving reports to the invoices for terms, quantities, prices and extensions

• Disbursements- responsible for preparing and signing cheques to vendors

- Cheques are signed by a person authorized by management or the board of directors

• Generally dual signatures on cheques over a certain amount are required

• Vouchers should be stamped paid so they are not paid twice

• General Ledger- ensure all purchases, cash disbursements, and payables are properly accumulated/classified in the f/s accounts

Segregation of Duties

Segregation – need to separate custody of assets, authorization and recordkeeping of assets (C.A.R. principle)

Key Segregation of Duties in the Purchasing Process

i) Purchasing function should be segregated from requisition and receiving functions

o Possible error: fictitious or unauthorized purchases may be made resulting in theft of goods and payment for unauthorized purchases

ii) Invoice Processing should be segregated from the AP function

o Possible error: Purchase transactions can be processed at the wrong price/term or payments made for items not received- so overpayment of goods and theft of cash

iii) Disbursement function should be segregated from the AP function

o Possible error: unauthorized cheques supported by fictitious documents may be issued and unauthorized transactions recorded

iv) AP function should be segregated from the GL function

o Possible error: concealment of defalcation which would be detected during the reconciliation of the subsidiary ledger to the GL control account.

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