Question

The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Although the department supervisor can indicate a preferred supplier or vendor on purchase requisitions, the purchasing department has the responsibility for making the final decision on a vendor.

a. Adheres to sound internal control procedures
b. Violates sound internal control procedures
c. Neither strengthens nor violates internal control

Answer 1

The scenario described follows sound internal control procedures because it employs segregation of duties; the department supervisor recommends a vendor but the purchasing department makes the final decision, ensuring transparency and accountability.

Step-by-step explanation:

The activity described adheres to sound internal control procedures. In internal control systems, it's important to have segregation of duties, which means that no single individual has control over all aspects of any financial transaction. The supervisor's ability to suggest a preferred supplier, while ultimately leaving the final decision to the purchasing department, exemplifies this principle. It prevents potential conflicts of interest and reduces the risk of fraud. The purchasing department, by having the final say, serves as a check on the department supervisor's choices, thus ensuring transparency and accountability in the selection of vendors.

The activity described in the question violates sound internal control procedures. According to strong internal control procedures, the department supervisor should not have sole authority to indicate a preferred supplier or vendor on purchase requisitions. Instead, the purchasing department, which has the responsibility for making the final decision on a vendor, should use a standardized process or evaluation criteria to select suppliers.