INTERNAL CONTROLS PURCHASING AND

INVENTORY

Rose Hubbell

Acquisition Cycle Ordering

Receiving

Warehousing

Purchasing Receives orders for products by list from

many requestors The actual request for inventory

replenishment should be based on count or back order.

Accountability or approval for purchase The best price obtained and quality from

the chosen vendor is adequate Avoid duplicate orders creating inventory

storing costs

What are Purchase Requisitions ?

A four- part form listing product needed to replenish supplies or inventory.

First step in the acquisition’s cycle. Used to control costs by verifying need. Budget control. Kept by purchasing to verify and record orders placed to measure time between orders.

Why Use Purchase Requisitions ?

Decrease double ordering. Approval of purchase based on the existing

inventory or supply count. Decrease ordering costs Discounts on larger quantities Validation of order request serves as back up for

purchase order , warehouse ,and accounts payable

Creates number sequence record of event, date, products ordered

Warehouse Receiving Receives deliveries Documents for items delivered in GP. If purchase order numbers do not agree

with received goods management notified

Process for damaged or return items Accepted items recorded daily in GP for

posting creating record of received inventory

Updating count.

What does a receiving document accomplish?

Daily Receiving Log serves as validation and backup for posted documentation from purchasing of actual receipt of inventory date, vendor, shipper, condition and count.

Match purchase order with packing slip to verify items on back order. Communication to planners of inventory available and back order items that affect job completions.

Damaged items, return items handled immediately. Notification of management

Immediate inspection of goods by one or more individuals daily assures the quantity and quality of goods received.

Goods Received Damaged Goods Daily Receiving Report

to accounts payable. Notify Purchasing and

accounts payable when RMA created to send product back to vendor.

Credit memo requested from vendor

O.K. Goods Receiving Report to

accounts payable. Receive in GP

posting report created

Request Purchasing to post daily.

Documents matched Invoice paid

Inventory Controls Purchase Requisitions

Manager approved number sequenced

Daily Receiving Log Authenticated by manager Notification to

purchasing of differences of product received and ordered

Daily posting

Restricted Access to warehouse

Physical access

Physical inventory

Separation of duties

Audience Feedback What procedures do we use now? How can we improve them? Who is responsible? Who is accountable? Communications?

Helms, George,PH.D,CPA,CIA,CISA,CFF,CITP, Purchasing, Inventory ,and Cash Disbursements: Common Frauds and Controls, 2012, American Institute of Certified Public Accountants, Durham, NC

QuestionsSuggestions ?