Audit Program Area: Discretionary Disbursements

AUDIT PROCEDURES Ref.

I. Planning
A.      Prepare an announcement letter to inform management of the audit and
request assistance in obtaining supporting documentation.
B.      Obtain a current and updated listing of companies and accounts from
Intranet to determine if there are any new companies or accounts within audit
scope. If necessary, update the spreadsheet of selected accounts. This is
used in the data extract program. Also review current policies & procedures for
disbursements & travel expenses.

C.      With Internal Audit management, determine if any changes to the

Discretionary Disbursement testing approach are necessary. For year 2007, a
different testing cycle was proposed and approved by IA management.

II. Data Extracts (Used in Sample 1 for Steps III and IV)
A.      Obtain from GEAC (general ledger) all expenses $1,000 and greater and -
$1,000 and under for the selected accounts. (Extract file into the Data Extracts
folder.) This extract is used as input for the random, judgmental, and Travel &
Entertainment data pull processes. The threshold amounts for duplicates is $
+500/$-500.

B.       Load the file into the appropriate ACL project. Select_Append.ACL for
the random/judgmental/expense book. Duplicates.ACL for the duplicates.
C.      For random, expense book and judgmental testing, pull a file with all
travel expenses of $1,000 and greater and all other expenses of $5,000 and
greater (along with the -$1,000 travel and -$5,000 all other) for the selected
accounts. (Select_Append.ACL batch)

D.      Run the ‘Analysis’ batch of the Samples.ACL which gives an overview of
the year’s expenses. Then run the ‘Sample Selection’ batch for the creation of
the files for review. For random and expense book testing, using ACL’s sample
selector randomly select two groups of 100 expenses per quarter. Review the
first group and discard recurring expenses, which have been tested before or
are known expenses. Retain 50 random selections with approximately 20%
from travel accounts. (If necessary, use the second group of 100 to fill out the
random selections of 50 expenses.) Divide these expenses between those
reimbursed through travel expense process and regular business expenses.
III. Random Testing – Performed for 2nd quarter expenses only (Sample 1)

A.      Request the documentation related to the disbursements selected for

audit from the appropriate parties:
B.       Compare supporting documentation: check requisitions, EFT forms,
invoices, Ariba orders, journal entries, etc. for each expense selected. Review
for:

1.      Ensure reasonable account used for expense. (Correct company,

account number and DSU)
2.      Determine expense was signed and authorized by the
appropriate personnel.
3.      Verify appropriate approval. Verify signatures w/approval limits.

4.      Determine that invoice and/or supporting documents are originals

(if available), complete in detail and provide adequate support.
5.      Test the invoice/supporting documentation for clerical accuracy.

6.      Ensure payee, address, and amount on check request, invoice,

and supporting documentation are all in agreement.
7.      Determine that the business expense was appropriate.

D.      Obtain copies of all exceptions and document in the summary of audit
findings.
IV. Travel Expense Testing – Performed for the 2nd quarter expenses only .
(Sample 1 &2, any items in the samples that are T&E)
A.     Obtain expense report documentation from the appropriate area.

B.     Compare Travel Expense Report, supporting documentation, and receipts

for each item selected. Review to ensure compliance with corporate policy.
(Also review Ariba entries if applicable)

1. Verify expense items over $50.00 have original receipts included in Expense
Reports.
2. Determine meals and travel expenses are not extravagant. (Note: no limit for
client entertainment expenses per policy.)
3. Ensure proper use of T&E expense for business expenses.
C.     Obtain copies of all exceptions and document in the summary of audit
findings.
V. Judgmental Review for Unusual Activity - Performed for the 2nd quarter
expenses only B178. (Sample 2)
A.     Review the ACL data file of all expenses greater than $5000 and travel
expenses over $1,000, and select a representative sample to review.

Pay special attention to travel, sales promotion, advertising, consulting,

general/miscellaneous expenses, employee activities & services and
discretionary allowance expenses.
 During the review select any expenses that appear unusual in relation to the
company, account number, payee, amount or expense type.

B.     Request the supporting documentation from the appropriate area.

C.     Compare supporting documentation: check requisitions, EFT forms, Ariba

orders, invoices, journal entries, etc. for each expense selected. Review for:
1.      Ensure proper general ledger account classification (correct
company, account number and DSU).
2.      Verify the expense was approved in accordance with corporate
policy.
3.      Determine that supporting documentation has been retained to
provide an explanation of the payment. Verify they are originals and
complete in detail. (Photocopies are only allowed on an exception
basis.
4.      Ensure the payee name, address and amount reflected on the
check requisition, vendor invoice or supporting documentation is all in
agreement.
5.      Test the invoice/supporting documentation for clerical accuracy
(line items and totals).
6.      Determine that the invoice was cancelled to preclude duplicate
payment.
7.      Determine that the business expense was appropriate.

E.       Obtain copies of all exceptions and document in the summary of audit
findings.
VI. Duplicate Testing – Performed for each quarter (Sample 3)
A.     Use the ACL data file of all expenses $500 or greater (and -$500 and
under). Using ACL’s duplicate feature, pull all expenses of the same absolute
amounts. (For example, this pulls all $1,500 amounts with all -$1,500 amounts
in case any items were cancelled.) (Duplicates.ACL)

B.     Manually review all the duplicate amounts and select expenses with similar
payees around the same dates to test for possible duplicates.
C.     Request the supporting documentation from the appropriate area as listed
for Random testing. When you pull the documentation from their files, review
the pairs of suspected duplicates right there and refile any that are not
duplicates.

D.     Review supporting documentation to determine whether the payments

were duplicates.
E.      For any expenses which seem to be duplicates after reviewing the
supporting documentation, request copies of the cancelled checks to verify that
both checks were cashed by the same payee.

F.      Contact the individuals who requested the duplicate payments. Discuss
the findings and, if a duplicate payment is confirmed, have them request a
refund.
G.     Obtain copies of all duplicates along with resolutions and document in the
summary of audit findings.
 G.     Obtain copies of all duplicates along with resolutions and document in the
summary of audit findings.
H.     Create the Duplicates Results report based on each quarter’s duplicate
testing results.
VII. Disbursement Issues Testing - Performed for 3rd and 4th quarters (Sample
4)
Perform selective, limited detail testing (similar to detail testing of random) for issues
meeting the following criteria:
o       Follow-up to the previous year’s management actions plans for each
business unit,
o       Additional testing of issue(s) found in 2nd quarter detail testing
(random, expense book, judgmental),
o       New issue(s) that may arise due to management concerns or
disbursement process changes.

Specific test steps will be added to this section when the when the actual issues are
determined
VIII. Global Exception Testing (Sample 5)
A.     Determine the general ledger Balance Sheet accounts that will be included
in the global testing population for the year. This step is completed once, just
prior to the Jan-June extract.
1.      Review the prior year work papers for a listing of accounts and
companies examined previously.
2.      Review the most recent Chart of Accounts to determine if any
new accounts have been added or dropped from GEAC. Determine if
the additions/deletions would be an area of concern for this exception
testing.
3.      Review the Chart of Accounts identifying accounts for which a
cash disbursement would be unusual. These accounts would then be
used to select disbursements that were recorded to this account
(global testing).
B.     Pull the general ledger activity for the selected accounts (from step A.3
above) and the appropriate time period.
C.     Investigate and document all exceptions identified.
Each item should have an offset. To find the offset for items that are
recorded on a quarterly or annual basis, refer to activity from one month
before and one month after the year to be tested. Contact the creator of
the entry to determine if the entry is legitimate

1. Document any exceptions and state conclusion on the overall test. Save all
email responses for Global Testing.
IX. Vendor/Supplier to Employee Address Testing – Performed for 1st and 3rd
quarters . (Sample 6)
A.      Compare the addresses between the HR file and the Vendor file.

1.      Extract employee name and address from the HR file.

1.      Perform the ACL commands necessary to ‘clean’ the employee

and vendor address fields. Examine each input file for duplicate
addresses before performing the actual match between the files. Join
the two addresses based on city / state / street. Produce report of all
matches.
 1.      Perform the ACL commands necessary to ‘clean’ the employee
and vendor address fields. Examine each input file for duplicate
addresses before performing the actual match between the files. Join
the two addresses based on city / state / street. Produce report of all
matches.
B.       Examine each match to determine if the match is to a company-named
supplier (as opposed to the employee data entered into the Supplier file for T&E
reimbursements).

C.      For all potential conflicts, run the CDS History name scan and the CDS
History address scans.
D.      Investigate and follow-up on any disbursements found in the scan runs.

X. Terminated Employees w/ Approval Authority Test- Performed for each

quarter (Sample 7)
A. Obtain from HR the most current active employee listing.the most current
authorization list. Using ACL, compare the two files and create a listing of
employees who have authorization but are not on the current active employee
listing.
B. Investigate and follow-up on any employees found in the comparison.
C. Document in the summary of findings.
XI. Prepare a summary of findings and recommendations to discuss with
Management regarding each business segment.

XII. Prepare Final Report

XIII. Actual to Budget Time Analysis

Done Time Date Date Checked
By Spent Expected Finished Remarks By:
 Audit Program Area

Audit Procedure
Global Ref
No,
Control Objective Risks Control
Activity
Number
 Control KeyControl? Frequency Owner Exceptions Type Document Mapping to
Description Reference Standards
AREA
DATE COMPLETED:
COMPLETED BY:
Question Yes No Comment
Finding Ref # Control Testing Finding
Management Response & Treatment