In Jack’s purchasing process, several issues need to be pay attention to reduce the risk of fraud or errors. As an auto detailing business, Jack’s Car detailing needs to purchase car decorating beauty supplies and other related surrounding decorative materials as the basic supplies for its business. In the first step, to avoid wrong order items /quantity, the purchase requisition form should list specific items and quantity. More importantly, the purchase requisition must be authorized by designated members of management for checking and confirming, making sure the purchasing is necessary for operating.
After approval, the company should select qualified vendor to order supplies. In this process, the company needs to pay attention to risk of invalid vendors. A background research of the vendors can be conducted if necessary. Other related information such as credit terms, delivery should be reviewed. Purchasing journals should be record by purchasing department. And accounts payable department is responsible for recoding the liabilities for good ordered.
When goods ordered received, inspecting the qualities and quantities of the goods should be conducted by receiving personnel to avoid fictitious purchase. And to make sure the accuracy of the received goods, the original purchase documents containing price and quantities should be kept away from receiving personnel. After signing bill of landing, receiving personnel should prepare receiving reports immediately in case of any omitted or invalid purchase. Moreover, using prenumbered forms matching with purchase orders for receiving reports can minimize the risk of omitting purchase transitions.
After receiving the goods, the company should pay the vendor and get the invoice. In this process, Jack should pay attention to cutoff issues, making sure the liability and inventory receipt are recorded in the same period. Also to avoid fictitious purchase, duplication purchase or incorrect information, some independent checks such as matching vendor invoice with related purchase order and verification are needed prior to recording and updating accounting journals. And the recoding is conducted by independent personnel.
For inventory control part, occasionally inventory check physical inventory count and reconciliation with inventory records may reduce the risk of stolen. Besides these controls in each step of the process, some routine controls such as monthly review and reconciliation of vendor statements with accounting recodes, timely updating purchase journals and accounting payable subsidiary ledger, segregation of ordering, receiving, inventory control, accounting payable, payment and general accounting functions are also required for minimizing risks in purchasing process.