accounting

Many purchasing systems are complex with automatic re-ordering so that once a supplier has been set up and a requisition input, payment will be processed automatically. Staff may also be in collusion with suppliers to commit fraud by receiving gifts or kickbacks for additional business, by paying invoices on more favorable terms than other suppliers, or as per the organization’s policy on payments. Also, employees may exceed ordering and payment authorization levels by splitting invoices or payments below authorization thresholds.

This assignment covers the types of tests one might perform when testing AP and looking for fraud, using IDEA. The following auditing plan as a roadmap through this assignment:

Despite your success on the AR project, your audit manager, Michelle Gwen Smith (MGS for short), knows that you are still pretty new to IDEA. As such, she has given you one of her old training workbooks with detailed instructions on how to carry out the requirements of this assignment. She was even kind enough to go through the workbook over the weekend and added a few notes that should help you complete your assignment. However, she has also blocked out some information to ensure you can draw your own conclusions.

1) Review the potential risks and their associated audit objectives associated with the Accounts Payable cycle. In a few sentences (at least two, no more than four) describe in your own words the primary risks that one faces when auditing and examining the Accountants Payable cycle.

2) Review the tests for which IDEA is well suited in the AP cycle, as well as the example data request form for obtaining AP data from a client.

3) If you have not already done so, follow the instruction in section 3A of the IDEA workbook and create a new managed project in IDEA for the AP work. Name the project and the answer sheet you submit AP_2018_YourLastName_YourFirstName.

NOTE: Be sure that you have set-up the G Drive folder, and that you have linked IDEA to the folder on the G Drive. Otherwise, you risk losing your work when you exit the virtual desktop. Instructions for setting up the folders, and finding/changing the IDEA default save location are in Blackboard.

4) Now that the AP project is created, you need to bring in the data from the client. To do that, work through Exercises 3B and 3C. After completing the import of both files, take a screenshot for audit documentation purposes. It needs to show both the record count per payments file, in “File Explorer” window on the left, and the control total of AMOUNT per the payment files via the “Properties” window on the right. I’ve included an example from another client below. Delete the example, including the arrows and boxes, and replace it with the one from this client. As a check figure, your record count should be 999, and the summed value of the AMOUNT should be $34,145,300.89. If you have these figures, great job, keep going, if not something has gone wrong and needs to be fixed before moving on with the assignment.

5) Using field statistics, get to know the data better by completing the following items.

a) Fill in the earliest and latest date for each of the date fields.

b) Using the values from the summary statistics you’ve computed, complete the below table.

c) Compare the spending files from this year and last year. (Hint: The supplier.txt data file contains the prior year total dollars spent per supplier)

Why does it make sense to compare the Net Value of 2018 to that of 2017, but not the Average Value, Maximum Value, and # of Records between the years, based on the files we’ve received?

6) We aren’t going to do much with the Dashboard in IDEA, but it is good to know what it can do. Follow the steps in exercise 3D. Maximize the chart “Accounts Payable: Count of records by Amount.” Take a screenshot of the chart, and place it in the space below, please crop or size it to be about the same size as the below example.

This is only an example of a chart from IDEA. Your graph will look different then this one. This example looks at payment date ranges, which is not what your graph will present.

To assess the payment activity, we grouped the payment amounts into ___strata. The first ten are groups of _______ and the final two are groups of _______. The largest stratum by record percentage is stratum ___ with ____ % of the total records. The largest stratum by dollar amount is stratum ___, with _____ % of the total dollars.

Following the steps in 3E, to create a stratification result chart. Copy the chart to your clipboard as a bitmap file, and paste it below. I have included an example of a stratified line graph below. Please delete the example and replace it with your graph. You do not have to submit a line graph. Feel free to play with the options within IDEA, such as chart type, and palette to create a graph that you think best conveys the information to the reader. However, please include the point labels (i.e., the number of items at the top of each stratum).

This is only an example of a strafified line graph from IDEA. Your strafified graph will look different then this one. This example looks at payments based on the number of days outstanding, which is not what your graph will present.

Given the general trend in payments, does anything seem odd or worth further analysis based on the report?

8) Follow the steps in exercise 3F, to identify and extract high and unusual payments. Then follow the “Additional Steps for MGS” to create a pivot table to summarize the payment amount by the person that authorized the payment. As noted in the additional steps, send the pivot table to Excel, then copy and paste the pivot table from Excel into this file. (Hint, you can paste the pivot table as a picture if you like, as that might take up less space. However, if you do, be sure to do all the necessary formatting within Excel before copying and pasting it here as you can’t change the format of the numbers within a pasted picture.)

In one or two sentences, indicate what appears odd or unusual about the authorization’s based on the summary results presented by the pivot table.

9) In exercise 3G, you will perform four data extracts. Use the extracts you created to identify exceptional transactions to complete the below table. Add any comments that you think relevant.

10) Complete workbook section 3.5 Applying Benford’s Law to Identify Exceptional Items, and then fill in the blanks within the below audit documentation.

Based on our identification of a large number of unusual and high payments, we performed a ___ digit Benford’s analysis of the payments file. We found that ___ of the nine digits occur in the first digit place more than expected, and ___ of the nine digits appear less than expected. Of those that occur more than expected, the digit ___ has the largest difference between expected and actual occurrences, occurring approximately _____ more times than expected. Of the digits occurring less than expected, the largest difference belongs to the digit ___, which occurs approximately ____ times less than expected.

Based on these results, we expanded our analysis by conducting a first two-digit Benford’s analysis. Based on graphical results, the largest outlier is ____, which prompted us to investigate the ___ transactions starting with these two digits. Of them, ___ are between $79,000 and $80,000, of which HMV authorized ___ of the transactions.

11a) We’ve been asked by the client to test for duplicate payments and records. Based on the outcome of exercise 3H, step 9, complete the below audit documentation.

There are ____ duplicate records, which include: ___ payment totaling $________ to supplier _____ and ___ payments totaling $_______ to supplier ______.

11b) Next, test for supplier numbers with multiple payee names. Remember that the client told us that each supplier number should only have one name. What do the results indicate?

12) While examining the Bank Reconciliation, a member of the audit team noticed that not all the checks issued appear in the AP system. Test for missing check numbers in the sequence by using gap detection and complete the below sentence.

There are ___ gaps in the check sequence and ___ missing checks.

13) We’ve been asked to analyze payment terms and ensure that the AP group is following the client’s payment policy. Follow the steps in exercise 3K to answer the below questions.

Please fill in the following audit documentation based on your findings from the payments made outside the payment policy range.

We note that there ____ payments totaling $_______________ or _______% of total payments, which occur outside of the client’s payment policy range. Of these, ____ payments are early, (before 25 days) and ____ payments are late (delayed more than 35 days).

The company’s policy is to pay all suppliers within 25 - 35 days of receipt of the invoice. Are the employees following the policy? Please provide two pieces of evidence based on the field statistics that support your answer.

14) The CFO suspects that someone is making payments to unauthorized suppliers. Follow the steps in exercise 3L to answer the below questions.

a) Based on the History file, how many unmatched primary records are there?

b) Compute the total prior year payments control total per the joined database and complete the below chart to determine if the control total agrees to the original control provided by the client.

To which supplier number are two supplier names assigned?

c) Now let’s look for Payments to Unauthorized Suppliers. These are any payments made to a company that is not on the authorized supplier list. To do this test, we can look for payments that have a blank in the SUPPNO1 field of the Supplier Verification database.

Per the “Payments to Unauthorized Suppliers” extract, the client made one payment, of $16,318.97 to a supplier with a blank SUPPNO. The client made the remaining ___ payments, totaling $_____________, to supplier number ______.

15) Using the “Supplier Verification” database, summarize (or total) the AMOUNT field for each Supplier (i.e., SUPPNO). Then identify suppliers where the total payments this year have either increased or decreased by over 25%. Create an editable field to mark which suppliers will receive the additional investigation and add a comments field.

What is the control total of payments this year to the 14 suppliers whose turnover if more than 25% different than the previous year?

16) The audit partner needs to report the findings of the investigation to the client. To help with, first, fill in the blanks in the below paragraph with the appropriate information. Then provide a short conclusion, (at least two or more than four sentences) summarizing your thoughts on how the AP cycle is operating, and if the client’s controls are working.

In conclusion,

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