Question

A Clemson University purchasing agent adds a new record to the vendor master file. The vendor does not exist. Subsequently, the purchasing agent submits invoices from the vendor for janitorial services. The invoices are paid. Which of the following internal control procedures would help prevent this from occurring

Answer 1

To prevent fraudulent invoicing, implementing internal control procedures such as segregation of duties, requiring management approval for new vendors and large invoices, and regular verification of billed services is critical.

Step-by-step explanation:

Internal Control Procedures to Prevent Fraudulent Invoicing

To prevent incidents like the one presented, where a purchasing agent at Clemson University adds a non-existent vendor and submits invoices for janitorial services that are subsequently paid, certain internal control procedures should be implemented. The key to prevent such occurrences lies in establishing controls over vendor setup and invoice approval processes. For example:

• Segregation of duties: Ensuring different individuals are responsible for vendor setup, invoice processing, and payments is essential to prevent fraud.
• Approval authority: Requiring higher-level management approval for new vendor setup and large invoice payments can deter the submission of fraudulent invoices.
• Verification of services: Regular audits and reconciliations by an independent entity or department ensures services billed have been received.

These measures, along with vigilant monitoring and prompt response to discrepancies, like what Noel showcased by notifying relevant personnel of an overpayment, can significantly reduce the risk of fraudulent activities within an organization.