Internal Control Checklist/Questionaires/Assessment On Expenditure Cycle

Do you want to set up an audit checklist to ensure that there proper internal controls for your company’s Expenditure Cycle?
Append below are some suggested salient internal controls points for the Expenditure Cycle:
General

• Policies and procedures for procurement and vendor selection should be clearly documented and communicated.
  

Raising of Purchase Orders, approval of payments and signing of cheques should not be handled by a single employee.
Vendor Qualification and Selection

• New suppliers should be vetted against key performance criteria and approved by the Functional Managers.
  

• The key performance criteria should include:
  

– Product quality
– Cost effectiveness
– Timeliness of delivery

• Justification for non-competitive procurement should be documented and subjected to lower authority threshold than competitive orders in accordance with the authority matrix.
  

• Reasons for selecting a bid other than the lowest should be clearly documented and approved.
  

• Sole suppliers on long term arrangements should be reviewed annually to ensure continuity of competitive pricing.
  

• A list of approved vendors should be maintained in the Vendor Master File (VMF).
  

• Vendor performance should be reviewed annually (based on key performance criteria) and updated in the VMF.  This review should also cover volume/frequency of transaction (reflection of saleability of the stock) to determine if a particular product be returned to the vendor.
  

Purchase Commitments

• Purchase Orders should be controlled sequentially.
  

• The person authorising the Purchase Orders should confirm the need to purchase and evaluate it against the following “value for money” considerations:
  

– Economic quantity
– Pricing
– Quality of product
– Timeliness of delivery
– Alternative sourcing

• Purchase Orders should include information on:
  

– Supplier name
– Description of goods and services
– Prices
– Delivery location
– Freight and payment terms
Vendor Master File (VMF)

• Access to VMF maintenance (add, edit, delete) functions should be restricted. This function should be segregated from payment processing.
  

• Open Purchase Order information should be maintained to facilitate monitoring of open and unfulfilled past due orders.
  

• Edit lists of all VMF changes should be automatically generated monthly for independent review by Finance Manager.
  

Reconciliation

• Major suppliers’ statements should be reconciled to the Accounts Payable subsidiary ledger quarterly.
  

Segregation of Duties

• There should be segregation of duties between the following functions:
  

– Raising of purchase requisitions
– Approval of purchase requisitions
– Receipt of goods and services
– Vendor masterfile maintenance
– Payment processing
– General accounting
Delegation of Authority (DOA)

• The documented DOA should cover the authority to:
  

– Requisitions
– Exceptions to competitive  bidding and tendering requirements
– Exceptions to approved terms and conditions
– Procurement of stocks
– Approval of vendor invoices