Question 1
The expenditure cycle is a set of activities associated with the procurement of and payment for products and services. The three key activities that take place are first, ordering of supplies, goods and services, second, receiving and storing the items and third, paying for the received items. The ordering process involves identifying what, when and quantity to purchase and from who. This process is faced with some threats.
The first threat is faced by purchasing products at inflated prices. Purchasing goods at inflated costs means a high cost for products than anticipated. This also implies that products will not be able to compete in the market at reasonable prices. Therefore, the inflated sale of goods reduces the profitability of the firm. For example, a hospital in Saudi Arabia orders gloves from China at a cost that is higher than that offered for the same gloves locally. This could be controlled through reviewing price lists, catalogs, and competitive bids, reviewing purchase orders and conducting performance reviews.
The second threat occurs when purchasing from unreliable suppliers. Most firms maintain purchasing arrangements with specific suppliers due to time and quality parameters. Unreliable suppliers may damage a firm’s reputation due to delays in delivery and delivering of poor quality raw materials. This means that the final product would definitely be of low quality, damaging the firm’s image. This threat could be controlled by reviewing purchase orders and restricting the access to and constantly reviewing the suppliers’ master file.
The third threat is kickbacks, which is a type of bribery, issued as an illegal payment meant to compensate for preferential treatment or any other type of improper services received. Kickbacks increase the cost to the organization. They also tend to damage a firm’s reputation because they appear as a result of poor quality goods. The threat could be controlled by avoiding gift policy for buyers, auditing buyers, and conducting vendor audits. An example of a kickback is when someone bids on a job and it is awarded to them, but they still need to offer someone some cash like $800 for receiving the award.
Question 2
Production operations include a set of business activities and the data processing operations associated with product manufacturing. The production cycle involves four major activities; product designing, planning and scheduling, product operations and cost accounting. This process encounters several threats. First, there is the threat of theft of inventory and fixed assets. Such a threat could be controlled by restricting physical access, properly authorizing material acquisitions and providing bar codes and RFID tags. Another threat may occur due to operations’ disruption. This threat may be controlled through the use of back-up power sources like a generator and having suppliers who have a plan and are prepared for any disaster. The third threat involves over or under production. It may be controlled through conducting accurate sales forecasts and inventory data, investing in production planning and conducting validity checks on production orders. Another threat may occur due to inaccurate recording and processing of production activity data. Its controls include use of badge readers and logical access controls.
Question 3
The term payroll can be defined as a list of company employees that are entitled to a certain payment and benefits. It also may refer to the money paid by an employer to employees. An effective payroll system makes sure that employees are accurately and consistently paid. The payroll systems are set up and managed by the HRM department, whose employees are conversant with pay rate, employees’ data, banks, and tax-related laws, among other things. Although the payroll system appears simple, it becomes complicated due to the numerous deductions that come into play. For instance, Saudi ARAMCO’s payroll system includes all employees’ information details like PAN and PF number, the last job details (in this case an employee is entitled to the previous job income) and taxes. The Kingdom of Saudi Arabia government imposes some percentage of taxes on employees. This tax is used to promote the country’s development projects as well as pay civil servants. The payroll system withholds taxes from each employee’s paycheck and makes sure that they are paid to the appropriate government agency. Saudi Aramco is also responsible for paying insurance premiums and depositing funds into retirement accounts for pensions. The insurance premiums and retirement funds are deducted through the payroll system. After all the deductions are made, Saudi Aramco’s HRM department, through the payroll system deposits the remaining amount of money, net salary, to each employee’s respective bank. Then, each employee can now access or withdraw their salaries from the bank.