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

CORPORATE GOVERNANCE IN EXPENDITURE PROCESSES (STUDY OBJECTIVE 12)

Recall that Chapter 5 identified four primary functions of the corporate governance process: management oversight, internal controls and compliance, financial stewardship, and ethical conduct. While corporate governance is important for all business processes, it is particularly necessary in the expenditures processes. Funds expended by an organization do not belong to managers. Managers are stewards, or temporary managers, of those funds. Corporate governance policies and procedures must be in place to ensure that funds are expended only to benefit the organization and its owners, not to benefit the managers or employees personally. For example, corporate governance policies should prevent managers and employees from using company funds to purchase items for their personal use. In other words, strong corporate governance should help prevent fraud, theft, and mismanagement within expenditure processes.

The systems, processes, and internal controls described in this chapter are part of the corporate governance structure. When management designs and implements processes for purchases, purchase returns, and cash disbursements, it assigns responsibility for executing those functions to various managers and employees. As management assigns and oversees these expenditure processes, it is carrying out the corporate governance function of proper management oversight.

Management should also establish appropriate internal ...