Accounting Information Systems: The Processes and Controls, 2nd Edition

RISKS AND CONTROLS IN THE PURCHASE RETURN PROCESSES (STUDY OBJECTIVE 3, continued)

AUTHORIZATION OF TRANSACTIONS

Whenever problems are noted with purchases, special authorization should be required to officially reject and return the items and initiate the preparation of a debit memo. All debit memos must be approved by a member of management or other designated individual within the company before the goods are physically returned to the vendor.

SEGREGATION OF DUTIES

The accounts payable employee who prepares the debit memos should not also be responsible for performing duties in the custody or authorization functions of the purchasing process. Accordingly, these individuals should not handle inventory or cash, or approve purchasing or purchase return transactions.

ADEQUATE RECORDS AND DOCUMENTS

The debit memo is the most significant document in the purchase return process. It is important that debit memos include thorough descriptions regarding the items being returned, including quantities and prices, as well as reference to the original purchase invoice. Debit memos should be issued in numerical sequence to enable the verification of complete accounting for purchase return transactions. When debit memos are issued on prenumbered forms, company personnel can account for the sequence and evaluate whether or not the entire sequence has been accounted for.

Debit memos should be filed along with supporting documentation such as the original purchase records. They should also be ...