AIS Test 3

AP Fraud

AP fraud usually involves phony vendors and fictitious invoices: Create bogus vendor record to direct fraudulent payments to that vendor. Control: Segregate creation of vendor records from AP/CD. Control: When vendor records are created, compare vendor phone number, address, etc. to employee records. Embezzle vendor refunds. Control: segregate AP from cashier who receives vendor refunds.

DQ12-3: In designing vendor records, what specific data elements would you include to help you select the best vendor for a particular purchase? Be specific as to the nature of the data to be stored, where it would come from, and how it would be used in the selection process.

Accumulate purchase amounts into a year-to-date purchases field to do the following: Confirm the good relations that have existed with a vendor. Distribute purchases among vendors (to maintain an adequate stock of vendors). Accumulate data about number of on-time deliveries, number of deliveries for which quantities were over or short, and number of deliveries that failed quality inspections to do the following: Select vendors that will deliver on time with acceptable quality. Eliminate vendors that fail consistently to meet quality, quantity, and timeliness standards. Use geographic location (entered at time vendor record is created) to do the following: Select a vendor for which we can minimize transportation time. Use shipping terms (known internationally as Incoterms) and payment terms (entered at time vendor record is created) to do the following: Select a vendor that will pay for the freight. Select a vendor that will allow delayed payments.

Supply Chain Planning Software

Accumulates data about orders from retail customers, sales from retail outlets, and data about manufacturing and delivery capability to assist in the planning for each of the SCM steps.

Possible Goal Conflicts (Cont.)

Ambiguity often exists in defining goals and success in meeting goals: A purchasing goal might be to select a vendor who will provide the best quality at the lowest price by the promised delivery date. Realistically, on vendor may not satisfy all three conditions.

Accounts Payable/Cash Disbursements (AP/CD) Process

An interacting structure of people, equipment, activities, and controls that is designed to accomplish the following: Handle the repetitive work routines of the accounts payable department and the cashier. Support the decision needs of those who manage the accounts payable department and cashier. Assist in the preparation of internal and external reports.

Purchasing Process

An interactive structure of people, equipment, activities and controls that is designed to accomplish the following: Handle the repetitive work routines of the purchasing department and the receiving department. Support the decision needs of those who manage the purchasing and receiving departments. Assist in the preparation of internal and external reports.

Key Controls for the Purchasing Process

Approve Purchase Requisition: An authorize individual, or several individuals, such as cost center or department management, should approve purchase requisitions. Use Authorized Vendor Data: Vendors should be vetted to determine their suitability to provide the organization with goods and services. The screening process might include vendor financial viability and performance record. Independent Vendor Master Data Maintenance: Should be separation of duties between the personnel who create vendor records (to authorize purchases and payments) and those that create and approve POs, record accounts payable, and approve payments. Without this separation: There could be kickbacks or conflicts of interest. Accounts Payable personnel could create a vendor account to create an invalid/fraudulent invoice. Compare vendors for favorable prices, terms, quality, and product availability: Before executing a purchase, prospective vendors should be compared to determine that they are the optimal choice for the purchase. Approve Purchase Order: Appropriate personnel should approve POs to ensure that an appropriate supplier has been selected and that the correct goods and services, for the correct amounts, are being purchased. Confirm purchase order to requesting department: The requesting department should be informed when a PO has been issued in response to a purchase requisition. Independent Authorization to record receipt: Before a receipt can be accepted and recorder, the receipt data should be compared with the PO master data to determine that an approved PO, prepared by someone other than receiving personnel, is on file. Compare input receipt data to PO data: Before a receipt can be accepted and recorder, the receipt data should be compared with the PO master data to determine that the correct goods have been received. Inspect goods: To ensure that the correct goods are received in acceptable condition.

Supply Chain Execution Software

Automates the SCM steps. Includes ERP software that receives and routes orders, and executes invoices. Many connections in the supply chain are B2B automated interfaces.

Fraud and the Purchasing Function

Because the end of the purchase-to-pay process is the payment of cash, manipulation of purchasing is involved in many frauds. Typical cases include: An employee places orders with a particular vendor in exchange for a kickback, secret commission, or other form of inducement from the vendor. An employee has a conflict of interest between his responsibilities to his employer and his financial interest - direct or indirect - in a company with whom the employer does business.

CD Fraud

CD fraud includes check forgery and fraudulent wire transfers: Stealing and passing stolen checks; check forgery. Control: Segregate check preparation from check signing. Control: Segregate disbursements from bank reconciliation. Capture online banking credentials with spear phishing and key logging. Controls: Firewalls, anti-virus software, educate employees regarding phishing. Control: Computers used for wire transfers should be used for no other purpose such as e-mail and Internet access.

Types of Collaboration in the Supply Chain

CRP: Continuous Replenishment also called: VMI Vendor Managed Inventory SMI Supplier Managed Inventory Co-Managed Inventory CFAR: Collaborative Forecasting and Replenishment (Precursor to CPFR) CPFR: Collaborative Planning Forecasting and Replenishment

Problem: The process in receiving for for counting and recording goods is time consuming and error prone.

Control: Employ automated data entry (e.g. RFID, bar codes).

Problem: Bob Daniels, a clerk in accounts payable at Amherst Company, has a cousin who owns a small office supplies company. Bob's cousin periodically sends invoices to Bob for office supplies that Amherst never ordered or received. Bob creates a one-time vendor record and records the invoice. Once recorded as a payable, the invoice gets paid.

Control: Access control software.

Problem: Vendor invoices are sent to clerks in the AP department at Rochester, Inc., where they are entered once each day to create a file of invoice data that is them processed by the accounts payable program each evening. Several errors have been found in the invoice data.

Control: Batch control plans.

Problem: Sarah, a buyer at Sanford Company, ordered unneeded inventory items from a vendor of which she is an owner.

Control: Code of conduct.

Problem: Invoices are received at Becket Company via an EDI feed over the internet. Some of these are fraudulent invoices from bogus vendors.

Control: Compare input data with master data (e.g. vendor master data).

Problem: At Ridgewood, Inc., there are often discrepancies between what is ordered and what is recorded as received. Discrepancies include wrong items and wrong quantities.

Control: Compare input receipt data with PO data.

Problem: Woodbury Company is often running out of inventory of certain key items. When research is conducted to find out the reason for the stock-outs, they find that a PO has been issued, but the goods have yet to be received. Typically, these delayed deliveries are consistently from the same vendors whose poor performance has been noted in the past.

Control: Compare vendors for price, terms, quality, and availability.

Problem: In a periodic/batch environment, helps to ensure the information system control goal of input completeness of the receiving reports.

Control: Computer agreement of batch totals.

Problem: The accounts payable clerks at Fairfield Company have difficulty reconciling the quantities recorded as received and the quantities on vendor invoices. Usually, the vendors claim that they are billing for the amounts they have shipped.

Control: Count goods and compare to vendor packing slip.

Problem: Delray Company uses the internet to send POs to its vendors. The vendors for Delray have been receiving POs that seem to be from Delray but are actually bogus.

Control: Digital signature.

Problem: On a weekly basis, Pete, the cash disbursements clerk at Dalton Company, prepares a batch of payments, including some to himself, and sends the batch to the treasurer for approval. Pete has worked out a deal with Sue, who works in the treasurer's office, to approve the batches, and they split the fraudulent payments.

Control: Independent authorization to make payment.

Problem: Fred worked in the receiving department at Altos, Inc. One day, goods were received from Adams Company for which no open PO could be found. To get the items received, Fred figured out a way to create a PO. As it turns out, the goods had never been ordered.

Control: Independent authorization to record receipt.

Problem: Bob, a buyer at Medford, Inc., was in a hurry to buy a part needed to get the Medford factory back in operation. He found Merrick Company, a local vendor that could supply the part that day but for a premium price. Because it was an emergency, he created a vendor record for Merrick and issued the PO. Subsequently, other buyers began to use Merrick for other purposes.

Control: Independent master data maintenance.

Problem: Pownal Company was sent an invoice for goods that were never received. The invoice was paid in full.

Control: Match invoice, PO, and receipt.

Problem: Webster Company ordered 15 widgets from Rosen, Inc. Only 12 widgets were received; the other three were on back order at Rosen. An invoice for 15 widgets was received at Webster, recorded, and eventually paid.

Control: Match invoice, PO, and receipt.

Problem: Goods are not being received in a timely manner.

Control: Monitor open POs.

Problem: The internal audits at Morriston Company have found several discrepancies in the inventory data; the inventory is on the shelf, but the records do not reflect those balances. When they investigate further, they find the goods were received but never recorded.

Control: Monitor open POs.

Problem: Goods recorded as received do not match what was ordered and sent by the vendor.

Control: One-for-one checking of goods received to open PO and vendor packing-slip.

Problem: Warehouse managers at Sarasota, Inc. have been discovering inventory shortages. When they investigate the paperwork transferring the goods from receiving into the warehouse, the evidence indicates that the goods had arrived in the warehouse.

Control: Perimeter and building controls.

Problem: Washington Company processes invoices in batches. The accounts payable program performs a three-way match of the invice with the PO and the receiving report. Those that match are recorded on the accounts payable master data. Those that do not match are printed on an exception and summary report. Some of these invoices are legitimate but are never recorded.

Control: Procedures for rejected inputs.

Problem: The accounts payable program at Dallas Company compares incoming invoices to open POs and receiving reports. The reject rate is very high, so Jane, the AP clerk, went into the program and changed the tolerance limits so that more invoices would pass the matching process and she would have fewer rejects to correct.

Control: Program change controls.

Problem: Quantity recorded s received does not correspond to the quantity actually received.

Control: Provide receiving with blind copy of PO.

Problem: Betty Saunders, the cashier at Southwick Company, has been writing small checks to herself for many months. No one has noticed.

Control: Reconcile bank account.

Problem: Doug, who worked in the warehouse at Brookline, Inc., has gotten into some financial difficulties and has figured out a way to make some extra cash by working with the folks at Melville Company. He creates orders for purchases from Melville and records a receipt, but no goods are ever received. Subsequently Melville sends a bill to Brookline, which gets paid, and Doug gets 20% of the take.

Control: Segregate warehouse and receiving.

Problem: Dewey, Inc. has several vendors who do not send invoices in a timely manner. Terms for payment are based on dates that goods are received, and discounts are being lost due to the late receipt, entry, and payment of these invoices.

Control: Tickler file of open POs and receiving reports.

DQ13-7: In the "Fraud and the Accounts Payable Function" section, we described a fraud committed by Stanley and Phoebe and another by Veronica. For each fraud, describe controls and technology that could reduce the risk of those frauds occurring.

Controls and technology that might have reduced the risk of the fraud perpetrated by Stanley and Phoebe include the following: Before opening the business account, the bank might have asked for documentation regarding SRJ Enterprises. Personnel in the accounting department should not be authorized to create vendor records. This function should be reserved for the purchasing department. Before the vendor record is created, the vendor address, telephone number, and so on should be compared to such data on the organization's personnel file to determine if the vendor and an employee might be related. Vendor invoices should be matched—manually or by the computer—to open purchase orders and receiving reports before an accounts payable record is created and the invoice paid. Controls and technology that might have reduced the risk of the fraud perpetrated by Veronica include the following: When the vendor invoice is entered, the invoice number should also be entered, and the computer should be programmed to detect and preclude entry of duplicate invoice numbers. When the vendor invoice is entered, it should be matched against an open purchase order and a receiving report. When a second, duplicate, invoice is entered, there would no longer be a PO or receiving report for matching, and the second invoice would be rejected. Veronica's employer should request that vendors apply overpayments as credits rather than returning the checks.

Potential Problems with SCM Initiatives

Data not collected or not shared across functional boundaries. Information is not shared between supply chain partners. Inaccurate data negatively effects the entire chain. Over-reliance on demand forecasting that may be inaccurate. Competing marketing and sales objectives can lead to unrealistic forecasts.

Technology Trends and Developments

E-invoicing: Proc essing of invoices in electronic form: Scan documents. Use purchasing cards (p-cards). Invoices can be submitted electronically. E-payments: electronic submission of payments: EDI and XML-based technologies. Settled through the ACH network, wire transfer or debit or credit card. Evaluated Receipt Settlement (ERS): A process by which an organization pays for a purchase on the basis of goods receipt. EDI is employed in the purchase-to-pay process, including the PO (processed in the OE/S process of the vendor), in advanced shipping notice (ASN), invoice, and payment. Electronic Invoice Presentment and Payment (EIPP) Systems: B2B systems that combine e-invoicing and e-payment processes to send invoices to customers via a Web portal or secure network using a third-party service provider and to receive electronic payments that are initiated by the payer, processed by the third party, and settled by the ACH network, wire transfer, or debit card company.

Technology and the Purchasing Process

E-procurement: Use of information technology to automate significant portions of the procurement process to reduce the number of people and amount of time required for the procurement process. For example, a purchasing organization can use intelligent agents, Web Services, and B2B exchanges. Paperless Systems: Eliminate documents and forms as the medium for conducting business. B2B Marketplaces: Which are particular Web Sites or portals that may be used as sources of supply in the procurement process. Radio-frequency Identification (RFID): A system for sending and receiving data, using wireless technology, between an RFID tag and an RFID transceiver. RFID tags are computer chips containing information about the object to which the tag is attached and an antenna that sends and receives data.

DQ13-5: An electronic data interchange (EDI) system may present an organization with opportunities and risks. a. What opportunities might an EDI system present? Discuss your answer. b. What risks might an EDI system present? What controls and other responses might an organization choose to address these risks?

EDI facilitates the timely and efficient flow of data between trading partners. For example, by enabling a just-in-time process, EDI can reduce the carrying costs of inventory and reduce the time to manufacture a product, thus improving customer service. The rapid EDI communications actually can prevent a production line from stopping due to a lack of raw materials. Failure of the communications link threatens the ongoing operation of EDI. To prevent this, the contract with the VAN should address the availability of the communications link. An organization may contract with alternative VANs to be used in the event of one VAN's failure. Communication via the Internet might also be used in lieu of VANs. Finally, alternative, non-EDI communications options (e.g., FAX, telephone) may be used in the event of communications failures. Unauthorized incoming or outgoing transactions may be processed. To prevent such occurrences, digital signatures may be used along with physical security and logical access controls (passwords, biometrics, and so on) to prevent unauthorized access to EDI applications. Digital signatures can also ensure that transmissions are not altered in transit.

Reorder Point (ROP) Analysis

Each item is assigned a reorder point based on its sales rate.

Push-based Supply Chain

Goods and services are ordered in anticipation of demand based on sales and demand forecasts.

SCM Software

Helps an organization execute the steps in a supply chain.

Non-Invoiced Dispursements

In some cases disbursements are not invoiced, e.g., freight bills, rent, payroll. The handling of non-invoiced disbursements depends on whether or not a voucher system is used. A voucher system prepares a voucher for every expenditure from payroll to purchases of raw materials.

Key Controls for the AP/CD Process

Independent Validation of Vendor Invoices: Authority to record a vendor invoice should come from the PO and receiving report data created by entities other than the entity that records the vendor invoice. Match invoice, purchase order, and receiving report: The invoice should be matched to the PO and receiving report data to ensure that items on the invoice were ordered and received and that the invoice is accurately recorded. Independent Authorization to Make Payment: Accounts payable records on which the payment is based should be created by an entity other than the entity that executes the payment. Reconcile Bank Account: Records of cash disbursements should be matched to the bank's records to ensure that all disbursements actually made by the bank were authorized and accurate.

Possible Goal Conflicts

Individual managers' goals may not be in congruence with organizational objectives: Purchasing may buy large quantities to reduce ordering costs and increase discounts leading to increased receiving, inspecting, and carrying costs.

Validity of AP/CD Inputs

Input Validity of Vendor Invoices: Achieved when recorded vendor invoices are for goods actually ordered and actually received (i.e., the invoices are supported by proper POs and receiving reports). Input Validity of Payment Inputs: Achieved when there is a documented valid, unpaid vendor invoice for each payment.

Purchasing Process Data Stores

Inventory Master Data: Record of each item stocked or regularly ordered. Vendor Master Data: Record of each vendor approved for use by the organization. Purchase Requisition Data: Data on all purchase requisitions. Purchase Order Master Data: Open POs including status of items on order. Purchase Receipts Data: Record of each receipt of goods and services.

Benefits of SCM

Lower cost to the customer. Higher availability of product. Higher response to customer requests. Reduced inventories along the supply chain. Improved buyer-seller relationships. Smooth shipping and receiving. Reduced item cost. Increased customer orders. Reduced product defects.

Determining Requirements

Need to determine what inventory to order, when to order it, and how much to order.

Economic Order Quantity (EOQ)

Order quantity based on costs of ordering and carrying inventory.

Possible Goal Conflicts (Cont.)

Prioritization of goals is necessary in choosing the best solution given the various conflicts and constraints placed on the process: Trade-offs are made in prioritizing among the goals that conflict. If the market is sensitive to satisfying customer needs, the company may pay higher prices to ensure that it can obtain the highest quality goods on a timely basis.

Triggering the Purchasing Process

Purchase Requisition: internal request to acquire goods and services. Requisitions are received from authorized personnel within an organization, and are: For inventory replenishment. Received from automated inventory replenishment systems, such as SCM process. Routed by workflow for approval by the requisitioning department supervisor.

Logical Data Descriptions for the AP/CD Process

Purchasing Events Data: Contains, in chronological sequence, the details of each invoice that is recorded. Accounts Payable Master Data: Repository of all unpaid vendor invoices. Cash Disbursements Event Data: Contains, in chronological sequence, the details of each cash payment made.

Purchasing Inputs and Outputs

Purchasing Order (PO): Request for the purchase of goods or services from a vendor. Blind Copy: Certain data on a document (or computer screen) is blanked out, such as quantities ordered on the PO available to receiving personnel. Vendor Packing Slip: Accompanies the purchased inventory from the vendor and identifies the shipment. Receiving Report: A document, such as a PO, annotated with the quantity received that is used to record merchandise receipts. Acceptance Report: Documents services received to formally acknowledge the satisfactory completion of a service contract.

DQ12 -1: Refer to the operations process (effectiveness) goals shown in the control matrix, Figure 12.13. Referring to goals A (purchasing) and B (receiving), describe a goal other than the one discussed in the chapter.

Purchasing operations goals (sample): (Contained in Figure 12.13.) Select a vendor who will provide the best quality at the lowest price by the required delivery date. Support other organizational units through a prompt purchasing process and through the timely notice of purchases placed. Maintain an adequate stock of vendors to provide a continuous, reliable source of supply. Minimize purchase returns and allowances. Facilitate cash planning. Facilitate logistical (e.g., warehouse, receiving) planning. Ensure timely receipt of ordered goods and services. Minimize ordering costs and the costs of the goods purchased. Receiving operations goals (sample): (Contained in Figure 12.13.) Ensure that the right goods in the correct amount are received in acceptable condition in a timely manner. Process only authorized receipts. Promptly notify other organizational units of receipts. Forward goods to the warehouse or other requester in a timely manner. Minimize material handling costs.

DQ13-4: In terms of effectiveness and efficiency of operations, as well as of meeting the generic information system control goals of validity, completeness, and accuracy, what are the arguments for and against each of the following? a. Sending a copy of the vendor invoice to the purchasing department for approval of payment. b. Sending a copy of the vendor invoice to the requisitioning department for approval of payment.

Purchasing personnel can review the invoice to ensure validity and accuracy of the invoice (i.e., the items were ordered, price, terms, etc.). The purchasing department review may delay establishing the payable and may cause the organization to lose a discount. AP personnel must follow up to ensure that the PO is received back from purchasing and is input to ensure input completeness. Sending a copy of the purchase order to the accounts payable office may be more efficient than sending the invoice to purchasing. Accounts payable personnel can examine the invoice and compare it to the purchase order. Without the receiving report, neither AP nor purchasing can determine if the goods were received. ● Without the PO, the requisitioning department personnel cannot know what was actually ordered on the PO versus what was requested on the purchase requisition. The requesting department review may delay establishing the payable and may cause the organization to lose a discount. AP personnel must follow up to ensure that the PO is received back from requesting department and is input to ensure input completeness. Sending a copy of the purchase order to the accounts payable office may be more efficient than sending the invoice to the requesting department. Accounts payable personnel can examine the invoice and compare it to the purchase order. Without the receiving report, neither AP nor the requesting department can determine if the goods were received. If the invoice is for a service, the most efficient and effective review of the invoice might be in the requesting department because they can certify that the service was received.

Exposure to Loss and Destruction of Resources

Resource losses due to unintentional mistakes and inadvertent errors are as costly as, or more costly, than those caused by intentional acts of fraud. Examples include: Making payments for incorrect amounts. Paying the wrong vendor. Paying the same invoice twice.

DQ12-7: "Auditors will never allow an organization to adopt a paperless system, so why do we waste our time bothering to study them?" Discuss fully.

Several points could be made regarding this statement. Some points relate to the issues of risks and controls, whereas others relate to the behavioral issues around the relationship of the auditor and the organization. The following points, in no particular order, some in the form of questions, might be discussed: Which auditor are we talking about, the internal auditor or the external? Should an auditor have veto power over business process features? An auditor may be required to audit a paperless process. In such a case, the auditor must understand the process sufficiently to conduct the audit or must decline the engagement. Understanding the technology may allow an auditor to conduct a greater variety of audits. On the other hand, auditors unfamiliar with a technology may resist its implementation to make their jobs easier. Do we, as auditors, want to be perceived as a group opposed to the adoption of modern technology? Although the development of controls often lags the development of technology (and abuse of that technology), controls exist to cope with most aspects of modern technology. So, rather than resist a paperless process, the auditor should ensure that the process will be implemented with sufficient controls and that the process be auditable.

Purchase Returns and Allowances

Sometimes defective goods are returned or an allowance is made for non-conforming items. This exception routine usually begins at the point of inspecting and counting the goods or at the point of validating vendor invoices. Purchaser transmits a debit memo to the vendor requesting the account adjustment. Vendor responds with a credit memo indicating the authorized account adjustment.

CPFR Process

Strategy and Planning: Collaboration Arrangement: Set the business goals for the relationship, define the scope of the collaboration, and assign roles, responsibilities, check-points, and escalation procedures. Joint business plan: Identify significant events that affect supply and demand, such as planned promotions, inventory policy changes, store openings/closings, and product introductions. Demand and Supply Management: Sales forecasting: project consumer demand at the point of sale. Order planning/forecasting: Determine future product ordering and delivery requirements based upon sales forecast, inventory positions, transit lead times, and other factors. Execution: Order generation: Transition forecasts into firm demands. Order fulfillment: Produce, ship, deliver, and stock products for consumer purchase. Analysis: Exception management: monitor planning operations for out-of-bound conditions. Performance assessment: Calculate key metrics to evaluate the achievement of business goals, uncover trends, or develop alternative strategies.

ABC Analysis:

Technique for ranking items in a group based on the output of the items. Can be used to categorize inventory items according to their importance.

Supply Chain Management (SCM)

The combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value to the customers.

Supply Chain

The connections from the suppliers of merchandise and raw materials through to an organization's customers. These conditions include the flow of information, materials, and services. Organizations manage the links in their supply chains to get the right goods, in the right amount, at the right time, and at minimal cost (i.e. efficiency) to create maximum value for their customers (i.e. effectiveness).

Bullwhip Effect

The multiplication of false orders up the supply chain can cause wild demand and supply fluctuations known as this.

DQ12-5: Figure 12.9 (the DFD depicting the receipt of goods and services) shows an update to the vendor master data from bubble 3.1 and another update to that same data from bubble 3.2. Discuss the difference(s) between these two updates. Be specific as to the nature of the data being updated in each case. How would your answer to this question be affected by your assumption about whether the PO receiving notification entering bubble 3.1 was "blind" as to quantities? Explain.

The update at Figure 12.9, bubble 3.1, will be for the Product Rejection Rate field. The update at Figure 12.9, bubble 3.2, will be for the Vendor Lead Time and Product Fill Rate fields. The latter update cannot be performed in bubble 3.1 because current Open Purchase Order master data must be obtained to determine expected delivery dates and partial shipments-to-date on this purchase order. If the purchase order receiving notification is not "blind," and the quantities on the receiving notification reflected previous partial receipts, the fill rate field could be updated at bubble 3.1. Finally, we could argue that both updates to the vendor master data might better be accomplished at bubble 3.2, where both the completed Receiving report and the Purchase Order master data are available. Also, if we look beyond the logical description of the logical DFD, we might assume that bubble 3.2 will be automated and therefore a more efficient place to undertake the Vendor master data updates.

Pull-based Supply Chain

Uses data from vendors and customers to make purchasing decisions on the basis of actual demand.

Validity of PO Inputs

Valid PO inputs: Start with a requisition that is approved by the appropriate cost center and results in POs that are themselves approved and issued to an authorized vendor. To be added to the vendor master data, a vendor should be investigated for the quality of its processes and products. By adding a vendor to the vendor master data, management has provided authorization to do business with that vendor. Valid vendor packing slip inputs are supported by an approved PO and an actual receipt of goods. Vendor packing slips not supported by an approved PO may result in overstocking inventory and, if the inventory cannot be used, an overstatement of the inventory asset. Vendor packing slips that do not correspond to an actual receipt of goods will cause inaccurate inventory and an overstatement of inventory liabilities.

Proc ess 1.1: Validate Invoice

Vendor Invoice: Business document - or electronic transmission - that notifies the purchaser of an obligation to pay the vendor for goods (or services) that were ordered by and shipped (or provided) to the purchaser. Match invoice to vendor master data. Match invoice to PO and receiving report (i.e. the three-way match). Update the vendor master data with purchase history.