Company Controls for Raptor Manufacturing

Your client, Raptor Manufacturing, is a large public company that manufactures afterburning
turbofan engines for F-22 fighter jets. Many components that are used in the production
process are purchased from nonrelated vendors. Since management can reasonably estimate
how many engines will be produced per year, the company has drafted and preapproved a
purchase budget based on their expectations. In addition, the company prepared an
approved vendor list from which purchases should be made. All purchase requisition forms
must be completed and signed by a production manager.
After conducting a walkthrough with management, you have identified the following
processes related to purchases and cash disbursements:
? Purchasing Department: When the purchasing department receives a purchase requisition
form, a purchasing agent conducts the following procedures. First, the purchasing
agent looks for the proper signature on the purchase requisition. If properly approved,
then the purchasing agent selects a vendor from the approved vendor list and contacts
that vendor to check for availability and pricing. Once the vendor and price have been
determined, it is time to place the order. Before the order can be placed, the purchasing
agent must determine whether the purchase is part of the preapproved purchase budget.
If the total purchase price is below $20,000 and the vendor is on the approved vendor
list, then the purchasing agent can place the order. If the total purchase price is above
$20,000 or the vendor is not on the approved vendor list, then the purchase must be
approved by the department head.When an order is placed, a purchase order is prepared
and sent to the receiving department, accounts payable, and purchasing department
head, and is filed in the nonreceived orders file.When the receiving report is received,
the purchase order is transferred to the received orders file. If a purchase order is in the
nonreceived orders file for more than 45 days, the purchasing agent reviews and investigates
the status of the order.
? Receiving Department: In advance of receiving an order, the receiving department is given
a copy of the purchase order.When the order is received, a receiving clerk fills out a receiving
report recording the date, the contents of the order, and any variance from the purchase
order. A copy of the receiving report is then forwarded to the purchasing
department, accounts payable, and receiving department head, and is filed in the received
orders file.
? Accounts Payable: The purchase order and receiving report are kept in an unpaid file until
the invoice is received. Upon receipt of the invoice, the accounts payable clerk matches
the invoice with the receiving report and purchase order. Once the invoice amount is verified,
the clerk records the transaction and files the invoice in the approved but unpaid
file. Every Thursday, a different accounts payable clerk prepares checks for all the invoices
in the approved but unpaid file and subsequently files the invoices in the paid invoices
file. The checks are then sent to the treasurer for signature.
? Treasurer: Unsigned checks are received every Friday from accounts payable. For checks less
than $20,000 and for a vendor on the approved vendor list, the cashier uses a signature plate
to sign the checks. For checks greater than $20,000 or for a vendor not on the approved vendor
list, the check is manually signed by the treasurer.
Identify and list the company controls in place related to purchase transactions
and cash disbursements.
(a) For each control identified:
? state the purpose of the control.
? state which management assertion(s) are related to the control.
? list the procedures and documents needed to test the control.
(b)What are some additional controls that could be implemented to improve Raptor
Manufacturing's control environment pertaining to its purchases and cash disbursements
cycle?
C, Which of the controls identified above could be audited using a
dual purpose test. How would this change the procedures and documents needed?