1. Chapter 8 Procurement and Human Resource Business Processes

2. Expenditure Cycle Concepts The Payroll Application System
Presentation Outline
Expenditure Cycle Concepts
The Expenditure Cycle
Payroll Concepts
The Payroll Application System

3. I. Expenditure Cycle Concepts
Purchase Requisitions
Purchase Orders
Receiving Reports
Voucher Systems
Invoice Verification

4. A. Purchase Requisitions
We better order these!
A purchase requisition is an internal document created to request the procurement of something.
They originate in stores or other departments within an organization.

5. We will get these from Acme, Co.
B. Purchase Orders
We will get these from Acme, Co.
Purchasing selects a vendor, then prepares a purchase order for the requisitioned goods.
The purchase order identifies the vendor, confirms the goods ordered, quantity, price, delivery date, and payment terms.

6. C. Receiving Reports
Purchase orders authorize the receiving department to accept delivery from a vendor.
Blind counts help ensure that receiving actually count the goods received.
A receiving report summarizes the goods received and accompanies them to stores.

7. D. Voucher Systems
The real control over disbursements is a final review of documents evidencing the entire transaction prior to authorization of payment.
In a strict voucher payable system, individual accounts for creditors need not be kept. Several vouchers may relate to the same creditor, as opposed to a single account in an accounts payable system.
A voucher shows, among other things, the name and address of the vendor, a description of the invoice, total or net amount due, and accounts to be charged (distribution).
Built-up voucher systems accumulate several invoices from the same vendor and pay these invoices with a single check.

8. E. Invoice Verification
Invoices must be checked against receiving reports and original purchase orders prior to payment.
Payment should only be approved when the above documents match, or the invoice has been satisfactorily reconciled to the other documents.

9. II. The Expenditure Cycle
Requisitioning in Stores
Order Processing in Purchasing
Receiving
Delivery Acknowledgement in Stores
Invoice Verification in Purchasing
Accounts Payable Prepares the Voucher Package
Cash Disbursements
General Ledger
Internal Audit

10. A. Requisitioning in Stores
Requests for purchases originate outside the purchasing department.
Purchase requisitions arise in stores or other departments.
Requisitions should be approved in the originating department.
Purchasing has access to the requisition thru the purchase database.
Prepare
Requisition
Processing
Purchase
Database

11. B. Order Processing in Purchasing
Purchase requisitions may be overridden due to a lack of funds, improper authorization by the requesting department, etc.
Purchasing selects a vendor using an approved vendor list or a bidding process.
Accounts payable, the requesting department, and receiving all have access to the purchase order through the purchase database.
Prepare
Order
Purchase
Requisition
Select
Vendor
Processing
To Vendor
Database
Retrieve

12. Stores has access to this report thru the purchase database.
Retrieve
Order
From Vendor
Delivery
Match to
Processing
Blind
Count
Enter
Receipt
To Stores
C. Receiving
Receiving accesses the purchase order and matches it with the vendor delivery.
Receiving only accepts deliveries for which there is an existing purchase order.
Blind counts are often used to force counters to actually count the items received.
A receiving supervisor later verifies the quantity against the purchase order.
Stores has access to this report thru the purchase database.

13. D. Delivery Acknowledgement in Stores
Purchase
Database
Retrieve
Receiving
Report
Match to
Delivery
From Receiving
Goods
Receipt
Processing
The stores department acknowledges receipt of the delivery on the receiving report in the purchase database.
Purchasing and accounts payable have access to the acknowledged report thru the purchase database.

14. E. Invoice Verification in Purchasing
From Vendor
Vendor
Invoice
Verification
Purchase
Database
To Accounts Payable
Purchasing uses the purchase database to compare the purchase order, acknowledged receiving report, and vendor invoice for any discrepancies.
Purchasing authorizes the invoice for payment once they are satisfied that the invoice is correct per the order and what was received.

15. F. Accounts Payable Prepares the Voucher Package
From Purchasing
Vendor
Invoice
Purchase
Database
Retrieve
Documents
Requisition
Order
Receiving
Report
Prepare
Voucher
Processing
Accounts
Payable or
Register
Check
Journal
To Cash Disbursements
To General Ledger
The purchase requisition, purchase order, acknowledged receiving report, and approved vendor invoice provide the support for the preparation of a voucher.
The voucher serves to summarize the purchase for entry on the records as a liability.

16. Cancel Voucher after Signing Check
G. Cash Disbursements
From Accounts Payable
Voucher
Check
Sign
Checks
Cancel Voucher after Signing Check
Post
Register
Control
Total
Forward to Payee
To General Ledger
Cash disbursements received the voucher package and check for signing.
Cash disbursements maintains a check register and forwards a journal entry to general ledger.

17. From Cash Disbursements
H. General Ledger
From Cash Disbursements
Control
Total
From Accounts Payable
Journal
Voucher
Compare
Post
General
Ledger
Processing
General ledger receives the journal entry from accounts payable (Debit – Accounts payable and Credit – Cash) and compares it to the control total for cash disbursements.
The journal entry is then posted into the general ledger.

18. I. Internal Audit
Bank
Reconciliation
Statement
Cancelled
Checks
From Bank
Check
Register
An independent reconciliation of the bank account is performed by internal audit.

19. Other Payroll Features
III. Payroll Concepts
Personnel
Timekeeping
Payroll
Other Payroll Features
Tax Forms

20. A. Personnel
Personnel is responsible for placing people on the payroll, specifying rates of pay, authorizing deductions, and any changes payroll items.
The personnel function is distinct from timekeeping and payroll preparation.

21. B. Timekeeping
Timekeeping is responsible for the preparation and control of time reports and job time tickets.
Timekeeping reconciles employee hours to job time summary reports received from production.

22. C. Payroll
The payroll department is responsible for the actual computation and preparation of payroll.
It should be noted that payroll is independent of timekeeping and personnel.

23. D. Other Payroll Features
Separate imprest payroll account to facilitate reconciliations.
Independent reconciliation of payroll bank account.
Independent paymaster distributes checks (i.e. independent of personnel, timekeeping, and payroll).

24. E. Tax Forms
Form 941 – Quarterly filing summarizing federal withholding, social security, and medicare taxes.
Form W-2 – On or before Jan 31 an employee must provide employees with this wage and tax statement.
Form W-3 – Summary form that accompanies copies of Forms W-2 sent to the federal government on or before Feb. 28.
Form 1099 Misc – Documents contract services over a certain amount in a given year.
Earnings statement – Statement summarizing payroll computations for an employees pay check.

25. IV. The Payroll Application System
The Role of Personnel
Payroll Processing
Internal Audit and the Bank Reconciliation

26. A. The Role of Personnel
The authorization for placing people on the payroll should be separated from the record keeping that payroll performs.
Personnel
Payroll
Authorization
and
Notification

27. Check is signed and deposited in imprest payroll bank account
B. Payroll Processing 2
Cash Disbursement
Timekeeping
Cost Distribution
Payroll
Accounts Payable
General Ledger
Job Time
Summary
From Production
Payroll Distribution
Journal
Voucher
Employee
Time Cards
Reconcile
Register
Check 1
Check is signed and deposited in imprest payroll bank account
Compare

28. C. Internal Audit and the Bank Reconciliation
Internal audit received information directly from the bank and performs an independent reconciliation of the payroll bank account.
Bank
Internal Audit
Deposit
Slips and
Checks
Statement

29. Summary Forms used in the expenditure cycle
Steps of the expenditure cycle
Payroll duties
Possible Payroll Features
Payroll Forms
Steps in the payroll cycle