CASE STUDIES CASE A: Bondstreet Company (Purchasing and receiving processes) The...

CASE STUDIES

CASE A: Bondstreet Company (Purchasing and receiving processes)

The Bondstreet Company sells medical supplies to hospitals, clinics, and doctor’s offices. Bondstreet uses an ERP system for all of its business processes. These supplies are maintained on a real-time basis in an inventory database in an enterprise system. The inventory records include reorder points for all regularly used items and one or two preferred vendors for each item. Vendors are researched and approved by the purchasing manager before being added to the vendor database by a clerk designated to maintain the database. Bondstreet employs the following procedures for purchasing and receiving.

Throughout the day, the supplies clerk receives from the enterprise system an online report listing those items that have reached their reorder point. The clerk reviews the report and creates a purchase requisition by filling out a requisition form in the company’s enterprise system. Each requisition has a unique identifier, and after creation, the purchase requisition data and inventory master data are updated to reflect the purchase requisition. Inventory manager approval is required for purchases over $1,000 and not covered by a blanket order. The inventory manager can log on to the enterprise system any time to look at open purchase requisitions that require approval and to approve those requisitions by checking the acceptance box. The computer records these approvals on the purchase requisition data.

Throughout the day, buyers in the purchasing department receive from the enterprise system online approved requisitions with a list of appropriate vendors. They select a vendor and enter PO data. After the PO is saved, the purchase requisition data and inventory master data are updated. The completed, prenumbered PO is then printed in the purchasing department and mailed to the vendor.

The receiving department inspects and counts the goods when they are received, compares the count to the packing slip, pulls up the PO in the enterprise system, and enters the quantity received. The PO and inventory master data are updated after the receiving record is saved. The general ledger master data is also updated to reflect the increase in the inventory balance.

CASE B: Internet Payment Platform (Purchasing and receiving processes)

The following describes the purchasing and receiving processes at the United States Department of the Treasury’s Bureau of Engraving and Printing (BEP) during a pilot of the Internet Payment Platform (IPP). Components of the IPP include a server with an “appreciating database” located at Xign, Inc. and an Intel server at BEP called the “Enterprise Adapter.” BEP’s mainframe, legacy enterprise system is called BEPMIS, which has an IDMS network database.

Contracting officers (CO) in BEP’s Office of Procurement enter purchase orders (POs) into the BEPMIS purchasing module, where they are stored on the IDMS database. Because the IPP does not accommodate a digitally signed PO and does not include sufficient text to comply with the Federal Acquisition Regulation (FAR), POs are printed by the BEPMIS system, signed by the CO, and mailed to the supplier. A routine on the BEPMIS system, written for the IPP pilot, is manually initiated each evening to extract and format POs for suppliers participating in the pilot. The core PO data (vendor, items, amounts, quantities, etc., but not including additional descriptive and contractual text) are extracted by this routine, as a batch, directly from the IDMS (BEPMIS) database and sent to the enterprise adapter, which converts the PO data from IDMS format into XML, encrypts the batch, and sends it to the IPP server at Xign, where it is stored on the IPP appreciating database. Now a PO record exists on both the IDMS (BEPMIS) database and the IPP appreciating database. After a PO is posted to the IPP database, IPP notifies suppliers via e-mail.

Having been notified that a PO has been issued, an employee at a BEP supplier logs on to IPP and reads the POs onscreen. Depending on the nature of the PO and a supplier’s policies, its employees might be required to wait for the paper PO before beginning the process of providing the goods, or they might be permitted to act on the electronic PO. The supplier sends the goods with a packing slip to BEP, where receiving personnel record the receipt into BEPMIS (no record of the receipt was recorded on the IPP appreciating database). BEPMIS prints a stock notice and it and the goods are sent to the warehouse.

The following is a list of 12 control plans from this chapter or from Chapters 8, 9, 10, and 11.

Control Plans

A. Compare input receipt data with PO data

B. Code of conduct

C. Compare vendors for price, terms, quality, availability

D.Monitor open POs

E. Independent authorization to record receipt

F. Count goods and compare to vendor packing slip

G. Independent vendor master data maintenance

H. Personnel management controls (supervision)

I. Perimeter and building controls

J. Segregate warehouse and receiving

K. Digital signature

L. Logical and physical access controls

The following are 10 system failures that have control implications.

System Failures

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

2. 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.

3. 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 purchases.

4. Doug, who works 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 paid 20 percent of the take.

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

6. 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 had been issued, but the goods had not yet been received. Typically, these delayed deliveries are consistently from the same vendors whose poor performance has been noted in the past.

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

8. 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 that they had shipped.

9. 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.

10. 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 that the goods were received but never recorded.

Match the 10 system failures with a control plan that would best prevent the system failure from occurring. Also, give a brief (one- to twosentence) explanation of your choice. A letter should be used only once, with two letters left over.