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Posted on Mar 3, 2015

Five Important Internal Control Considerations for Expenditure Processing

by Marvin M. Mendieta, CPA, CGFM, Audit Manager

Perhaps one of the most significant business functions in a given organization is expenditure processing. It is important to have adequate controls in this area to ensure only valid payments are disbursed to the appropriate parties. Consider the following the next time you take a look at your organization's internal controls when it comes to expenditure processing.

Vendor Master File Access. Access to the vendor master file should be restricted. The employee who maintains the vendor master file should not be tasked with recording payment information in the accounting system or approving expenditures. The vendor master file should be reviewed for changes independently on a regular basis to ensure accuracy and propriety of those changes.

Separation of Duties. Authorization and approval of expenditures should be separate from recording of disbursements in the accounting system. The employee responsible for approving invoices and payment documents should not be the same employee who is tasked with recording those invoices in the system. Also, recording of disbursements should be separate from signing of the checks. The employee responsible for recording invoices in the system should not have the ability to sign the disbursement checks or have access to the blank check stock. In addition, if employees are tasked with printing checks, they should not be recording disbursement transactions or preparing and reviewing the bank reconciliation.

Signature Stamp Security. If the entity maintains a signature stamp or facsimile plate, the authorized check signer should have custody of the signature stamp and ensure that the stamp is kept in a secure location. It is recommended to have dual signatures on disbursement checks so two different individuals validate the transaction. Disbursement checks should be compared to the check listing by an independent employee to ensure the payees and amounts agree and that the distribution of the checks is performed by someone independent of the expenditure process.

Wire Transfers. For wire transfers, it is recommended to have one authorized employee to initiate the transaction and another authorized employee to approve and release the wire transfer. These individuals should not be responsible for making changes to the vendor master file or performing bank reconciliations.

Reconciliations. Finally, accounts payable and bank reconciliations should be performed regularly and timely. They should be prepared by an employee independent of the disbursement process. In addition, the reconciliations should be reviewed and approved by someone other than the preparer of the reconciliation. Budget to actual expenditure reports should be reviewed on a regular basis to monitor the expenditures that are being charged and perform analysis on variances and other anomalies.

By implementing the appropriate controls and ensuring certain tasks are separated among employees, the risk of errors and fraud can be mitigated in the expenditure process.


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