PURCHASING, PAYABLES, and PAYMENTS

Internal Control
PURCHASING, PAYABLES, and PAYMENTS
As public servants, it is our responsibility to utilize the taxpayers dollars in the most effective and efficient way possible while adhering to laws and regulations governing those processes. There are many reasons for placing controls in various points in these processes that may appear bureaucratic, but are necessary to ensure guidelines are followed and there is accountability to the taxpayers. Examples of the results of those controls are to support that: Purchasing policies and procedures are complied with. Competitive bidding and contracting procedures are followed. Purchases are authorized and approved by the appropriate individuals. Budget is sufficient to meet the commitment. All expenditures are lawful, properly authorized, and represent a responsible and appropriate use of State funds. Goods or services are actually received and they meet quality standards. All expenditures are for goods or services where the full value of such goods and services was actually received. All expenditures are sufficiently documented, accurately and completely recorded, charged to the proper accounting period (fiscal year) and properly classified as to category of expense. Obligations for goods and services are paid in a timely manner as required by law or contractual terms, in sufficient time to take advantage of early payment discounts. All accounts payable are properly recorded at yearend in the correct fiscal year. Any estimates are reasonable and sufficiently documented.

State of Utah Accounting Policies and Procedures: FIACCT 04 Purchasing All sections FIACCT 05 Payments All sections

Control Objectives: 1. Controls are in place in the process to ensure accountability is established as early as possible at all points along the accountability chain. 2. Segregation of duties, or mitigating controls, exists within transaction processing authorization, custody, and recording functions. 3. Separation of duties exists between the various types of transaction processing (e.g., procurement, accounts payable, disbursements). 4. The quantity and quality of goods and services received is documented and agrees with the requisition and performance expectations such as service level agreements, contract terms, and vendor performance. 5. Transactions are properly verified before disbursement. 6. Transactions and activities are properly authorized. 7. Transactions and events are properly recorded. 8. Accountability for refunds and credits are maintained. 9. Staff understands their duties, responsibilities, and accountabilities. 10. Procurement practices and procedures are documented, and in compliance with State, Federal, and other requirements such as contract terms and conditions. 11. Applicable laws and regulations are complied with. 12. Procurement records for authorizations and transactions are maintained in accordance with established requirements. 13. Accounting records are protected from theft, obsolescence, or destruction. 14. Assets are safeguarded from loss through watchful and responsible care and reconciliation functions.

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PURCHASING, PAYABLES, and PAYMENTS

Internal Control
Segregation of Duties Segregation of duties is one of the most important features of an internal control plan. The fundamental premise of segregated duties is that an individual or small group of individuals should not be in a position to initiate, approve, undertake, and review the same action. These are called incompatible duties when performed by the same individual. Examples of incompatible duties include situations where the same individual (or small group of people) is responsible for: Managing both the operation of and record keeping for the same activity. Managing custodial activities and record keeping for the same assets. Authorizing transactions and managing the custody or disposal of the related assets or records. Stated differently, there are four kinds of functional responsibilities that should be performed by different work units, or at a minimum, by different persons within the same unit: 1. Authorization to execute transactions: This duty belongs to persons with authority and responsibility to initiate and execute transactions. 2. Recording transactions: This duty refers to the accounting or record keeping function, which in most organizations, is accomplished by entering data into a computer system. 3. Custody of assets involved in the transactions: This duty refers to the actual physical possession or effective physical control/safekeeping of property. 4. Periodic reviews and reconciliation of existing assets to recorded amounts: This duty refers to making comparisons at regular intervals and taking action to resolve differences. The advantage derived from proper segregation of duties is two fold: 1. Fraud is more difficult to commit because it would require collusion of two or more persons, and most people hesitate to seek the help of others to conduct wrongful acts. 2. By handling different aspects of the transaction, innocent errors are more likely to be found and flagged for correction. Ideally, the following activities should be segregated: Individuals responsible for data entry of purchasing and payment transactions should not be responsible for approving these documents. A department should not delegate expenditure transaction approval to the immediate supervisor of data entry staff or to data entry personnel. Individuals approving expenditure transactions should not supervise data entry staff. Delegated expenditure authority must be in writing and approved by the appointing authority. Individuals responsible for acknowledging the receipt of goods or services should not be responsible for purchasing or accounts payable activities. Individuals who prepare/record payments should not approve the payments. Individuals who prepare/record payments should not perform budget compliance and review. Individuals responsible for cash receipts functions should be separate from those responsible for cash disbursements.

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

INSTRUCTIONS Each State agency is to complete this Purchasing, Payables, and Payments Internal Control Questionnaire for each business area that performs these functions. A business area may not handle all functions, in which case N/A would be marked. Most agencies should be able to complete this questionnaire for all business areas at one time. If this is not practical in large agencies, please coordinate with the DAS Division of Finance a schedule for completion of the questionnaire. Please answer each question by checking the appropriate box (either Yes, No, or N/A). A No response identifies an internal control weakness or that the control is achieved with another compensating control. Please describe in the Comments field for each No answer: The plan to resolve the weakness, or The compensating controls. Sign the certification on the last page. Return to your agencys chief financial officer for review and forwarding to Financial Reporting in DAS Division of Finance.

SEGREGATION OF DUTIES CONTROL QUESTIONS Yes 1. Are the individuals responsible for the requisitioning/receiving and purchasing functions different from the individuals responsible for the invoice processing/accounts payable, and budget monitoring/review? Are the individuals responsible for the purchasing function different from the individuals responsible for the requisitioning/receiving functions? Are the individuals responsible for the invoice processing/accounts payable functions different from the individuals responsible for the budget monitoring/review functions? Are the individuals responsible for the payment document creation and payment approval functions different from the individuals responsible for budget monitoring/review? Have individuals received training on the policy and procedures for the business functions they perform? Have individuals received FINET system training for the transactions they have been given security to perform? No N/A Comments

2.

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

PROCEDURAL CONTROL QUESTIONS Yes 1. Requisitioning procedures and controls: Is the initiation of purchases of goods and services done by properly authorized requisitions bearing the approval of officials designated to authorize requisitions? Does the person requesting the purchase indicate the budget to be charged on the purchase requisition? Are there procedures that monitor budgets to ensure that expenditures are in align year to date and do not exceed the budget for the fiscal year? Do technical specifications accompany requests for special purpose (non-stock items) materials or personal services? No N/A Comments

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Purchasing procedures and controls: Are appropriate employees signed up to receive Purchasings electronic newsletter containing important Purchasing Information and facts? Are employees encouraged and supported to attend Procurement training courses offered through the DAS Division of Purchasing? Is a procedure in place to determine availability of item/service from another state agency? Are procedures in place to determine if item/service is currently available on agency contract within your department? Are procedures in place to determine availability of an item on the State Cooperative Contract through the DAS Division of Purchasing? For purchases under $1,000, are appropriate management authorizations in place? For purchases between $1,001 and $5,000, are agency competitive bidding procedures in place (obtain minimum of two quotes)? For purchases between $1,001 and $5,000, are agency competitive bidding procedures documented (telephone quote sheet)? For purchases between $1,001 and $5,000, are procedures in place to determine the lowest responsive and responsible bidder? When determining the budget for a purchase, are freight and/or delivery charges included in the total estimated purchase price?
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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

Yes 15. Does your agency promote the use of the State P-card Program to make payment on routine purchases of $5,000 or less? Is the P-card monthly statement reconciled to approved supporting documentation and the entry to allocate the expenditures posted by the end of the following month? For purchases made within agency specific delegated authority (LPD), are procedures in place to obtain competition, select the appropriate supplier, and document the process? Are there procedures to prevent and detect splitting orders to avoid higher levels of approval? Are procedures in place to account for fiscal year end procedures including: Meeting the April 15th deadline to send in requisitions to DAS State Purchasing (RQS and RQM)? Ensuring delivery of goods prior to the end of the day on June 30, to pay with current fiscal year funds? Ordering from State Cooperative Contracts timely to ensure delivery prior to June 30? For one time purchases estimated to exceed $5,000, is a procedure in place to verify need, enter the RQS and coordinate with DAS State Purchasing? For agency contract purchases estimated to exceed $5,000, is there a procedure in place to verify needs, enter the RQM, and coordinate with DAS State Purchasing? Does your agency maintain a record of suppliers who have not met quality or other performance standards and do you have a process in place to inform DAS State Purchasing? (see Administrative Rule R33-6) Are procedures in place for all IT related purchases to be routed through the DTSRemedy system? Are open purchase orders reviewed on at least a quarterly basis to determine if correct and valid? (Resource: DataWarehouse; FINET Reports; Procurement . . . Reports; A640C & A640NC Purchase Order Reports) Are changes to contracts or purchase orders subjected to the same controls and approvals as the original agreement? Are available offered discounts for purchases entered on the purchase order transaction? Are periodic checks made for compliance with your purchasing policy?
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No

N/A

Comments

16.

17.

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19a.

19b.

19c.

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

Yes No N/A Comments

28. 29. 30.

31.

32.

33. 34.

35.

36.

37.

Contract administration procedures and controls: Are contract programs monitored? Are the results of monitoring documented? Does the monitoring ensure that the contractors are performing in accordance with the contract? Is the reasonableness of progress payments validated and documented based on work performed? Are extra work and/or contract modifications approved only with some form of cost or price analysis? Are audits of the final costs under cost reimbursement contracts required? Are fixed price/lump-sum contracts subjected to pre-awarded cost or price analysis? For agency contracts with renewal options, are procedures in place to ensure renewal process is started and completed prior to expiration date of contract? For agency contracts without renewal options, are procedures in place to begin procurement process timely? Is a procedure in place for agency purchasing personnel to forward to agency contract managers the Contract Expiration Notification Report email sent by DAS State Purchasing?

38. 39. 40.

41.

42.

Receiving procedures and controls: Is the receipt of all goods documented with at least a signature and date? Are claims filed against carriers or vendors for all shortages or damaged materials? Are goods received accurately counted and examined to verify they meet quality standards? Are copies of receiving reports sent directly to accounting, purchasing, and (if applicable) inventory record keeping? Is a government technical representative assigned to monitor and evaluate contractor performance and to approve receipt of services with respect to procurements of special-purpose materials, services, or facilities?

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

Yes Invoice processing procedures and controls: Are payments made only on the basis of original invoices? Are copies of receiving reports and applicable purchase orders obtained directly from issuing departments? Are invoice quantities, prices, and terms compared with those on the purchase order? Are invoice quantities compared with those on the receiving report? Are differences in invoice and purchase order price, terms, shipping arrangements, or quantities referred to the purchasing department or appropriate manager for review and approval? Is the accuracy of all calculations checked? Are available offered discounts entered on the payment transaction (if they were not entered on a preceding purchasing transaction)? Are available offered discounts for purchases deducted when paying by Pcard? Sales tax is not paid and exemptions are filed with vendors? Is a review of the distribution of charges in the accounting department done by an individual with the knowledge and experience to determine the correctness of the distribution? Are the program and expenditure accounts to be charged reviewed for propriety and budget conformity? Does a senior employee reviewing and approving invoices for payment physically check each for completeness of supporting documents and required clerical checking? Is the payment document number written on the invoice or kept as part of the batch documentation? Are the paid invoices and documentation filed with the transaction they were paid on? Are both the accounting and purchasing departments promptly notified of returned purchases? When a vendor credit advice or refund check is received, is it matched with the notification of returned purchases for quantities, prices, and restocking fees? No N/A Comments

43. 44.

45.

46. 47.

48. 49.

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51. 52.

53.

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56. 57.

58.

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

Yes 59. a.) If returned purchases are refunded with a check before any other accounting transactions are recorded, or b.) If a check is received for a duplicate payment, is a CR done for the amount received (entering the Vendor Number, using the original coding block, and noting the original transaction number in the reference field)? ** When you are purchasing from the vendor within 60 days, is the amount of the credit advice recovered by entering a negative accounting line (using original coding block and noting the original transaction number in the reference field) on the next payment to the vendor? ** When you will NOT be purchasing from the vendor for more than 60 days, is the amount of the credit advice recovered by entering a GAX with a negative accounting line (using original coding block and noting the original transaction number in the reference field) and not checking the single payment flag? ** (Note: in some situations it may be best to process a RE to invoice the vendor and receive a check payment from the vendor for the amount due.) ** It is a good practice for an audit trail to open the original payment document and in the document comment section, insert a comment of the transaction number used to recover the returned purchases. No N/A Comments

60.

61.

62.

Disbursements procedures and controls: Is the FINET payment transaction approved timely to insure that the available discounts are taken?

63. 64.

Accounts payable controls: Payments are not made from vendor statements? Are outstanding balances on vendor statements investigated to determine if not yet paid and the reason why?

65.

FINET Security: Is the FINET security profile updated with DAS State Finance on a timely basis whenever there is a change in an employees work assignment?

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PURCHASING, PAYABLES, and PAYMENTS Agency: Questionnaire Division/Unit/Location:

Yes 66. Is the listing of the FINET security profile for all employees requested from DAS State Finance and reviewed by the agency on an annual basis? No N/A Comments

CERTIFICATION For the agency and business area indicated on this form, we are providing this statement in connection with this internal control questionnaire for the purpose of acknowledging that we are aware of the risks and harms that might occur to the State if the agency has not established and/or does not follow strong purchasing, payables and payments internal controls. We confirm that we have accurately completed this questionnaire and documented all purchasing, payables and payments internal control weaknesses.

Name: Title:

Signature: Date:

Name: Title:

Signature: Date:

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