Case Analysis

November 17

Abstract

The P card system is having the intended impact on the organization by making it easier to account for purchases made by employees on its behalf. The Various rules relating to how the cards should be used are however not being observed by employees, which makes it likely that the cards can be abused or used for fraudulently by employees. Annual and monthly transaction limits were for example exceeded by several cardholders as well as the single transaction limit. The organization's accounting system also inaccurately allocates the same transaction number to more than one transaction. A review of internal control policies relating to the card needs to be undertaken as well as the accounting system being used to account for individual transactions carried out by cardholders. 

P-Card Case Analysis

Introduction

The P card system was introduced by the organization to allow employees to, make purchases using the card instead of their personal credit cards. This was meant to improve accountability and make it easier for the organization to account for all purchases made. An analysis of transactions carried out using these cards showed that they have been successfully used to make a variety of purchases of items needed by the organization. Certain internal control measures relating to how the Cards could be used were however violated by employees. Transaction limits were, for example not observed by cardholders. The accounting system used by the organization also failed to properly account for each transaction. The failure of an internal control system can lead to fraud and the misappropriation of resources (Jaggi, Mitra, & Hossain, 2015). The organization therefore needs to improve internal control measures relating to the card if they are to be used as intended. 

IDEA Report Question 1

The selected internal control for the first question focused on limiting the amount each employee can spend using their p-cards. An internal control measure was put in place the limited the total spending by each employee to $50,000. This meant to keep the total spending in check and ensure no single employee violates the benefits the card is intended to have. 

Results and Analysis Question 1

The findings of the analysis showed three employees had exceeded the annual spending limit of $50,000. This indicates the control measures in place are not effective and staff do not have an early warning system that would alert them when the limit is exceeded. Measures should be put in place to ensure the organization can determine when the spending limit is reached. 

IDEA Report Question 2

The second internal control measure was meant to limit the total spending by each employee per month. The total monthly spending was supposed not to exceed $10,000 per employee. 

Results and Analysis Question 2:

The results of the analysis showed that a significant number of employees had exceeded the set monthly spending limit of $10,000. A total of 8 employees have spent more than $10,000. With the highest amount spent being $19,134. This also shows the internal control system is not effective in enabling the organization to determine if the spending limit has been reached. A system of tracking the spending by each employee should be put in place to ensure spending limits are not exceeded. 

IDEA Report Question 3

The third question focused on whether holders of the p card spend less than $5,000 per transaction. The transaction limit was also meant to ensure that the card was correctly used by employees in the intended way. 

Results and Analysis Question 3

An analysis of the transactions carried out showed that at least one of the employees exceeded the limits significantly. The results of the analysis indicate that one transaction made by Ropers was for $15,120.00. This indicates that employees are either not aware of existing transaction limits by the company or select to intentionally violate existing rules. This means the company needs to ensure all employees are aware of transaction limits and disciplinary action is taken against violators. 

IDEA Report Question 4

The fourth question was focused on whether purchases can be made out to the cardholder. According to the organization's rules, a cardholder could not charge purchases to themselves or supply the organization with goods and services. 

Results and Analysis Question 4

An analysis of transactions carried out showed there are no employees or cardholders whose last names were the same as vendors to whom payments for purchases made were paid out to. This shows that cardholders are aware of this requirement by the organization and have not used the card fraudulently by making payments to themselves. Additionally, cardholders should be required to disclose any businesses they operate, which can be disqualified from being vendors to the organization. 

IDEA Report Question 5

The fifth question tried to ensure that the organization's systems were functioning accurately by ensuring that each purchase has a unique transaction number. This ensures that each transaction is accounted for separately and the organization is in a position to account for all spending made accurately.

Results and Analysis Question 5

The results of the analysis indicated there were several instances when the same transaction number was used for several transactions. One transaction number was for example used for two different transactions made by the same cardholder. This makes it difficult to accurately account for each transaction as and observe transaction limits as a single transaction involves several other transactions in real sense. This also increases audit risk, as an auditor may not be in a position to account for all transactions carried out by the organization (Cunningham, Kremin, & Warren, 2019). The design of the system needs to be reviewed to ensure that all subsequent transactions are allocated a unique transaction number. 

IDEA Report Question 6

The sixth question related to the use of the card to make purchases related to food. Employees were required to make food purchases separately and submit a voucher for reimbursement. This was also meant to ensure that cardholders did not misuse the card on personal expenses. 

Results and Analysis Question 6

The results of the analysis indicated that no cardholder had made any purchases relating to food items. A search of the term food for all transactions carried out showed there were no entries in the database. This showed employees were aware of the policy and were complying with it as required. 

Conclusion/Recommendations

Although the p card system is functioning as intended, there are serious internal control violations that may limit its effectiveness in the organization. Key among these are transaction limits, which are not being observed by cardholders. Several cardholders are violating both annual and monthly transaction limits as well as the limits placed on each of the values of a single transaction. This means new measures have to be put in place that will educate employees on the need to observe transaction limits. Cards for employees that violate limits can also be discarded. The accounting system also needs to be redesigned ton ensure each transaction carried out by the organization has a unique number, which improves traceability and accountability. 

References Cunningham, L., Kremin, J., & Warren, A. (2019). Using Public Company Filings to Plan the Audit and Perform Risk Assessment Procedures. American Accounting Association, 13(2). Jaggi, B., Mitra, S., & Hossain, M. (2015). Earnings quality, internal control weaknesses and industry-specialist audits. Earnings quality, internal control weaknesses and industry-specialist audits, 45, 1-32.