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Purchasing/Disbursements Guide



Introduction

This self-assessment guide examines the procedures and controls for departmental purchases and disbursements. The guide describes basic controls that are most effectively applied by departments rather than by the central Purchasing and Accounting Offices for the University or by the Endowment Association. Additional information is available in “Purchasing Services Information” on the “Comptroller’s web site and in the “KU Endowment Funds Administration & Use Handbook”. Questions regarding the use of this guide or assistance in improving purchasing and disbursement controls should be directed to Comptroller's Office (4-3066), the Purchasing Office (4-3790) or the Internal Audit Office (4-3975).

Approval Authority

  •  The person who approves (signs) transaction logs has the responsibility to ensure that expenditures are appropriate. That person, if not the department chair, should be specifically delegated that authority by the chair and should thus sign his or her own name (and not the name of the department chair). Determine who approves the following documents:
    1. Purchase Requisition (DA-100)
    2. Transaction logs for Vouchers, Purchase Orders, Service Order Vouchers (SOV's), and Business Procurement Card transactions
    3. Travel Expense Detail forms
    4. Real Estate Lease Agreement (DA-46) and Real Estate Lease Cover Sheets (DA-47)
    5. State Agency Contract Cover Sheets (DA-146)
    6. Prior Authorization Forms (for off-contract, sole source and emergency purchases)
  •  If someone other than the head of the department signs these documents, has the authority been delegated in writing? Have any limitations on the authority been described in writing?
  •  Are rubber stamps ever used in place of original signatures? The use of rubber stamp signatures except on routine correspondence is strongly discouraged because access to the rubber stamps is too difficult to control.
  •  Does the department have any unique purchasing requirements that result in special handling not covered by University guidelines? Have adequate written procedures been established to handle these requirements?

Access to the University Accounting System

Access to the University's accounting system must be restricted to only those users who have been approved and trained to process transactions. Passwords to the system should be secured (not taped to monitors, under keyboards, etc.) and periodically changed per KU policy (Information Services Policy). Operator IDs and passwords should only used by those to whom assigned. System users should be held accountable for all entries made under their operator ID.

Separation of Responsibility

Verify that adequate separation of responsibility exists for approving and handling the purchasing and disbursement documents discussed above. Separation of responsibility is a control concept intended to ensure that no one person is allowed to perform all aspects of any financial activity without adequate management oversight. The following are the primary concerns in regard to purchasing and disbursements:
  •   Does the person with authority to approve (sign) purchasing and disbursement transaction logs and documents also maintain the accounting records for the department and reconcile to the monthly reports from the University’s accounting system?
  •   If yes, there is inadequate separation of responsibility and the duties should be divided between at least two persons. We suggest, for example, that department managers be directly involved in approving departmental expenditures.

Verification of Department and University Records

Each department should maintain records that can be verified (reconciled) with the University's accounting system per KU policy (Department Account Reconciliation). Determine whether disbursement and encumbrance transactions are verified each month to reports generated from the University’s accounting system. This verification (reconciliation) process is to ensure that only appropriate departmental documents have been received and correctly processed by the Comptroller’s Office and that the account balances shown by the department agree with the University’s accounting system.
  •  Are the department’s records adequately maintained to facilitate the above reconciliation process?
  •  Is the process performed monthly?   Is the process documented (i.e., are there written records of how the reconciliations were done and their results)? Are all unexplained differences investigated and reported to the Comptroller's Office?
  •  If appropriate separation of responsibility was not possible because of staffing limitations, is the documented reconciliation thoroughly reviewed by the department chair or a designated representative each month? Does the person review the types of purchases being made for authenticity and appropriateness? If a designated representative performs the review, is a simple statement prepared for the chairperson to document the results? 
  •  Is a timely report of the financial position of the department (with comparison to budget), prepared for the chairperson on a monthly basis? (NOTE: This report should include both the transactions recorded in the University’s accounting system as well as any departmental transactions that have not yet been posted to the University’s accounting system.)

Review of Process

Evaluate the purchasing and disbursement process.
  •  Did only authorized personnel approve documents?
  •  For purchases of $5,000 or more, were competitive bids required or prior authorization received from Purchasing Services?
  •  For significant purchases under $5,000 (if not made through State contract) were informal telephone bids conducted or other steps taken to determine the lowest price?
  •  Are invoices examined for any discounts for prompt payment and is processing then expedited?
  •  If the department has a Business Procurement Card, what procedures have been established to ensure that only the cardholder has access to the card and that no other employee uses the card to make purchases?
  •  Has the department developed procedures to prevent duplicate payments, to receive credit for returned goods, and to adjust payment for damaged items?
  •  Did the department receive the purchased items before the voucher was paid? Were the purchased items sent to the department and not to an individual’s home?
  •  Has a specific area(s) been established within the department to receive incoming goods and has a uniform method been implemented to check and document receipt of the purchases?
  •  For travel documents, are the State’s travel reimbursement guidelines available to prevent problems and to assist in answering questions? More information on travel reimbursement can be found in the “Travel” section of the Comptroller’s web site.

Endowment/KUCR Funds

Review the purchasing and disbursement process for transactions involving KU Center for Research and Endowment Association funds.
  •  Apply the control principles discussed above to the processing of transactions involving KUCR and Endowment funds. Refer to guidelines from those two organizations for specific requirements - see the KUCR Business Services (KUCR Business Services) and Endowment (Endowment Use Handbook). (In order to access the Endowment Use Handbook a password is required; this password may be obtained by calling 832-7388.)
  •  Emphasis should be placed on the review of the verification/reconciliation process and the validity of disbursements for a recent period of time. For Endowment funds, financial reports can be created through Endowment's IFAS web site.  (A password is again required to access Endowment's IFAS web site. Call 832-7388 for information concerning access to Endowment's accounting system.)