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The stages in purchasing where the authorisation is necessary are as follows.
Generally the procurement manager purchases the product so the authorisation from the
Procurement manager is necessary. The next stage is to select the supplier and the relevant person of the each department shall be authorised for particular department. Procurement management sends the invoice to the department of accounts and so authorisation is important where payment is made. In the process of payment, it is important to check the threshold of the payment. Fulfilment is the next stage where the goods are dispatched to the buying organisation. Therefore proper authorisation from the supplier is required to be taken in order to record the transactions properly.
At the time of issue of the receipt for delivering the goods the authorisation is also necessary from the gate keepers and to whom they are handing over the goods shall also be authorised.
When the final payment is being made the supplier will typically generate an invoice which is either sent along with the goods or separately later. This will be received by the finance department and the authorisation from the finance department is necessary to pay for the goods received.
Inventory control also known as the stock control is necessary to evaluate the stock in hand and maintaining the same while required on urgent basis. It applies to every item that has been produced and inclusive of raw materials, finished goods. It cover the stock in the process of the production, during the purchase and delivery of the goods. It is necessary to have controls as they ensure the right amount of stock is available at right time and can be transported at the right place. There are several controls used during the management of the inventory which are as follows.
Minimum level stock: identification of the minimum stock level and the quantity has to be reordered when the stock reaches at this level. The control is needed to evaluate the minimum quantity required by the company and not to face the shortage or scarcity of goods.
Stock Review
The regular review of stocks provides and extreme relaxation to the company as the regular review determines the variances in the physical as well as the actual stock. The review gives a reality check of the stock.
Just in time
The just in time is necessary to reduce the cost by keeping the stock at a minimum level as the item are delivered as an when they are required. It also helps in maintaining the lower count of inventory easily and without any hassle.
Batch control
Batch control is used to manage the production of the goods in batches. This method helps in evaluating the right number of the components to cover the needs until the next batch starts.
The potential risks if the authorisation is not considered or not undertaken are as follows.
Loss of the goods: the goods might be lost if the proper authorisation is not taken from the relevant authorised persons.
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Excessive quantity: if the authorisation is missing there is no outlook on the record of the quantity to be kept. There will be imbalance between the minimum quantity and the actual requirements. At times it may happen that the excessive quantity is ordered against the requirement and the stock in underlying in the warehouse.
Misuse of the stock: the stock can also be misused if it is in the hands of the unauthorised person. The unauthorised person may keep the stock for personal use as well.
Fictitious receipts
Fictitious receipts may also be generated if the authorised person is not there to sign the receipts. The unauthorised person may default or embezzle the transactions of the inventory.
Segregation of duties is a pillar of the internal control and the sustainable risk management. The principles of the segregation of the duties are based on the responsibilities shared for a process or a department. The decision of the work increases the value of the output and saves time. The segregation of duties is must in order to ensure that the chances of frauds and errors are less manageable. Proper segregation of duties are required to initiate the purchase orders, maintenance of the journal and purchase orders, authorise the inventory purchases, scheduling of the inventory production, verification of the process or the inventory are some of the activities.
Potential risk if this system was not placed
There are certain risks involved if the segregation of the duties is not possible amongst them the first and the foremost is detection of frauds and errors becomes difficult if the segregation of duties is not possible. Segregation of duties allows at least one person to check all the transactions that have been recorded and this way the authenticity of the transaction is maintained. The lacks of segregation of duties will eventually lea dot lower productivity of the company, the employees will feel neglected and the work will take more than the normal time to complete the given task.
Vendor registration form: the vendor registration form is required to get the basic details of the vendor like the name the location of the office and the materials he deals. A proper script of the same is used for the future purposes. It acts as evidence in case of the chances of the clashes. The vendor registration form is basically a contract on the paper between the receiving party and the vendor in order to keep entire detail about what stock and from which location the same has been purchased.
Company owner gst numbr: the second document that is required is the detail of the GST number of the vendor which will provide the authenticity of the supplier. it is a proof of whether the dealer is authorised to sell the materials or not.
Invoice
Once the vendor has registered the next important document is the invoice which is generated in three modes. The invoice is generated in three forms. First copy is for the purchasing party to whom the goods are to be delivered. The duplicate copy is for the supplier, who sold the goods and is keeping a track of the same. The triplicate copy is handed over to the transporter for moving the goods from one place to another.
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Sample
The documents also contain the sample document which is sent to test the sample. The samples are sent to give a brief introduction of the product. The sample will determine the factors like quality, texture and it will also enable the company to get an idea of the product initially.
Apart from these major documents there are several other documents which are prepared in association with these such as brand ‘specification delivery clause, quality clause, purchase order, comparative charts for the purpose of the comparison with the other dealers and the samples provided by them.
Access controls are the security techniques that determine who and what can view or use the resources in any type of business environment. Basically, they are used in the field of physical and information security which restricts the access to a particular place or resources. In the field of inventory acquisition, access controls help in determining the person who has the right and ownership of acquiring a particular inventory. Sometimes, where there is an agent-principal relationship, agents purchase or acquire inventory on behalf of their principal but the actual access and the ownership remains in the hands of principal only. He is only liable for each and every type of risks and rewards occurring from such acquisition. Apart from this, there is a difference between the date of acquiring the inventory and date of transferring the inventory. It is not always necessary that both the dates are same. Sometimes, the inventory is been sold on a particular day but the transfer of the same is done on another. During such period, access controls are applied which helps in determining the person who has the control over the stock and who can access it. However, the time when the inventory is sold, the ownership rights are also transferred to the buyer but he or she cannot use it since it is not transferred to the desired place. In such situation, proper access controls are been applied while acquiring the stock.
Independent checks are basically one of the control activities which are carried out with an objective to ensure the reliability of accounting information and to establish efficiency in the business operations. In case of purchasing inventory, various types of independent checks are been done by the employees to make sure that correct and adequate amount of inventory is been purchased and is according to the requirement. However, this activity is just not the periodic review of the stock but is far more than this as it has significant implications that put burden on management and supervisors who are engaged in purchase and handling of company’s stock or inventory. Such checks are used as a method to confirm the accuracy and completeness of inventory data. Following are the types of independent checks which are performed at time of making inventory purchase
• Reconciliation
It is a process which takes records from different sources and compares them accordingly. This check allows the company to derive the inventory data from various sources and compare them to figure out the required amount which is to be purchased. It helps in identifying the amount of shortage in the inventory of the company.
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• Comparing physical assets with the records
It is another type of independent check in which the firm compares its inventory records with its physical assets. It checks and tally the number of assets with the recorded one. This check is usually done at time of purchasing additional inventory as it helps in knowing about the assets which are present physically but not recorded and the assets that are mentioned in the records but are not there physically. This ultimately helps the management to figure out the exact amount of inventory they require purchasing for their business.
• Recalculating the amounts
this can help in discovering the errors happened manually while counting the amount of physical inventory. Sometimes, it happens that the supervisor fails to count the inventory correctly which ultimately has some bad results. So at time of purchasing the stock, the management must recalculate the amount of its existing inventory.
• Analysing the reports
Managers are also required to properly and critically analyse and review the inventory records and the data presented in the report. On the basis of such reports only, they can take appropriate decision regarding the purchase of a stock. Reviewing the reports timely will help in assessing the errors and maintaining the accuracy and reliability of data. Managers must make an independent check of these reports before and at time of making any sort of purchase.
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