Thank you Mai flor and Diamond.

Since we already know what are the risks in purchase to pay or

procure to pay cycle. Let us now study the functions of each department and on how they mitigate the
said risks by applying possible controls.

The first department is the user department- they prepare requisition slip to be forwarded to
purchasing and accounts payable department. The purchase requisition form, also known as a purchase
request or a PR, is an internal document staff uses to request the organization purchase goods or
services.

The next department is the Purchasing or procurement department – ano ba ng goal ng department na
to? It is to provide the needs of the user department at the least possible cost. This department Initiates
purchases, including: placing vendors on an authorized vendor list, requisitioning goods and services and
preparing purchases orders. It also monitors the status of orders and updates the customers. Purchasing
department is where the INITIATING PURCHASE RISKS occur.

Based on what Mai flor discussed, here are the potential misstatement or risks:

1. Lack of control over purchases and unrecorded liabilities,

control: prenumbered purchase requisitions and purchase order, and checks numerical sequence.

The purchase order number makes it easier to see which purchases were made, which were paid, and
which items delivered by which date with the corresponding number. A PO number ensures that your
invoice gets processed quickly and it minimizes the risk of incorrect payments

2. Purchases for unauthorized purposes

control: verification of employee authorization code to enter requisition or purchase order is a must

to make sure that all the placed purchase orders are from the authorized personnel and for authorized
purposes.

3. Fictitious vendor and bill for services not received

This case is an example of employee fraud.

In this scheme, an employee will set up a fictitious vendor or company for the purpose of committing
fraud. The employee will fabricate a name, often similar to the name of another vendor that the
company transact with.

control: Proper segregation of duties and formalized procedures will assist in avoiding this type of billing
scheme. For example, one employee submits an invoice with a payment voucher, and another
employee approves the payment voucher.

compare vendor on purchase order to the master file or to the list of authorized vendors. That’s why it is
important for entity to maintain a list of authorized vendors
The third department is the Receiving Department – they provide reasonable assurance that received
goods are based on approved purchase order

here are the potential misstatement or risks:

1. Goods may be received but not recorded

This may occur kapag tinamaan ng katamaraan ang receiving department, or di naman kaya dahil rin sa
sobrang dami ng mga goods na nirereceive nila. So kahit na tinamad na ang receiving department

control: checks for goods ordered and not received within a reasonable period of time. In that way
masscan nila kung ano yung mga goods ordered and received pero di pa nila narecord at para marecord
pa nila bago mahuli ang lahat.

Dahil matalino daw ang taga purchasing department, natunugan nilang pwedeng tamarin ang mga taga
receiving department. ,the purchasing department sends a blank purchase order to ensure that the
receiving department will count, check, and record the goods received

2. Accepting goods that were not ordered or authorized

Possible naman to kapag may nakalusot na purchase for unauthorized purpose sa purchase department

Maaaring ito ay Unordered materials and supplies, - Excessive quantities or incorrect items, and -
Canceled or duplicated orders.

The company might receive and pay for, rather than return or refuse: -

Control: checks validity of purchase order before initiating receiving report TAKE NOTE THAT

-Only materials supported with an authorized purchase order or its equivalent are accepted.

-Computer system routines are used to verify that the material orders received are for legitimate

outstanding purchase orders (e.g., match the purchase order number entered as part of the receiving

transaction with records contained on the purchase order master file).

-Computer system controls, such as access control software, have been installed to preclude
unauthorized entry of receiving transactions into the system.