Chapter 6 HomeworkDesigning a Control

Name:

Date:

Vendor Master Data File Control - Review

Background

1. As part of the month end (external) financial reporting close process, the AP Supervisor runs a: (a) Vendor Master Data File ADDITIONS Report, and (b) Vendor Master Data File MODIFICATIONS Report. She prints a screen shot of the previous month's last five dated transactions and a screen shot of this month's first five dated transitions.

1. (S)he obtains the Vendor Master Data File Information Packets [Packet] - consisting of a fully executed and approved Vendor Master Data File Form supported by the TIN check, IRS Form W-8/9, and other required support - for additions and modifications that were generated for the month. (S)he places the tickmark by every addition or modification that has a supporting Packet. (S)he places the 0tickmark by every addition or modification that is not supported by a Packet, indicating it has been selected for further review.

1. (S)he visually scans each report looking for unusual or unfamiliar transactions, inclusive of repetitive entries made to the same vendor; (s)he placesthe tickmark 0 by each indicating it has been selected for further review.

1. (S)he then judgmentally selects 6 additions and 6 modifications, and randomly selects 6 additions and 7 modifications (a total of 25); (s)he places the tickmark 0 by each indicating it has been selected for further review.

1. Describe here what the AP Supervisor looks for and/or does to each Packet selected to ensure it is valid, accurate, complete, and authorized. [See Linking Financial Statement Assertions reference]

ANSWER:

BACKGROUND

ITEM	DESCRIPTION
WHO
WHAT
WHEN
HOW
WHY

CONTROL

INITIATION

PERFORMER

REVIEWER

RETENTION

QUESTIONS

1. Considering the existence and occurrence financial statement assertions:
2. What do you think could go wrong (WCGW) - in terms of an input error or fraud - at this juncture?
3. Does the control address all WCGW concerns - in terms of an input error or fraud?
   1. If not, rewrite the control to address this omission.

ANSWER:

1. What is the control precision (i.e. dollar amount of error that it will detect?)

ANSWER:

1. Using the control types described in the textbook and/or lecture power point, what "type" of control is this? Remember that a single control can fall under several types, so list all that apply.

ANSWER:

New Supplier Set Up Control - Example

Process Flow

1. The Vendor Master Data File Form is used to set up a new vendor or make a change to an existing supplier account in the accounting system's vendor static master files. The Form is required to agree to an IRS Form W-8/9, reflect the desired payment terms, and have the dated signature approval of a director level employee or above.

1. The approved Form and supporting documentation is first submitted to Purchasing Compliance Coordinator where a vendor TIN check is performed and any discrepancies resolved, prior to approving it for AP processing.

1. The AP Supervisor verifies that the form is appropriately completed, approved, and that purchasing has performed the TIN check.The AP Supervisor then signs and dates the Form and assigns it to an AP Clerk for processing.

1. The AP Clerk prints a screen shot of the accounting system's vendor master file to show the vendor is not already established in the accounting system's static master vendor files. The AP Clerk then inputs the information from the Form, takes a print shot of the input screens, and then signs and dates the Form as the processor.

1. The AP Supervisor or above verifies that the information on the Form, especially the Payment Terms, agrees with what was entered in the accounting system. She resolves any errors and then signs and dates the Form as reviewer.

1. The AP Clerk files the Form and supporting documentation for subsequent audit.

Analysis

1. Who:
   1. Control performers:
      1. Purchasing Compliance Coordinator
      2. AP Clerk.
   2. Control reviewer: AP Supervisor.
   3. Record retention: AP Clerk.

1. What:
   1. Purchasing makes certain that the supplier is viable (i.e. not fraudulent.)
   2. Accounts Payable makes certain the Form is complete and accurately entered into the accounting system's static master vendor data file (i.e. no material errors).

1. When: Transactionally, at time of input, and when a new vendor is being setup or when changes are being made to an existing vendor file in the accounting system's static vendor master files.

1. How (precision): All data input to the accounting system must fully agree to the validated and approved Form, against which a TIN check and background check was performed.In other words, this source documents agreed exactly with the Form.

1. Why: High risk areas for an automated accounting system - with effective general computing controls - is at the point of input and output.The accounting system's static vendor master data files are the first point of input for the purchasing sub-process (of the Procure-to-Pay Process.) The total amount of transactions that are processed through this control exceed the materiality threshold, therefore this is a key control. The financial statement assertion: existence and occurrence. All input must be reviewed for validity (i.e. error) and fraud.

Control

For each new vendor setup or modification to the vendor master data files:

1. [INITIATION] The Purchasing Compliance Coordinator: (a) verifies that each Master Data File Form (Form) fully agrees to Form W-8/9 information, contains the Payment Terms, and has the requisite approvals (E/ Fraud) and (b) performs a supplier TIN check, resolves any material, financial discrepancies, and approves the Form for AP processing (E/ Fraud).
2. [CONTROL PERFORMER] The AP Clerk enters the new vendor or vendor modifications into the accounting system's static vendor master files, making sure that all input fully agrees to the approved Master Data Form.
3. [CONTROL REVIEWER] The AP Supervisor or above verifies that all information recorded into the accounting system fully agrees to the information on the Form, especially the Payment Terms. (E/ Fraud)
4. [DOCUMENT RETNTION] The AP Clerk retains the form with supporting documentation for audit.