Question

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LIVUMI U ULPI. ܐܐ Explain how the principle of separation of duties is violated in each of the following situations. Also, suggest one or more procedures to reduce the risk and exposure high- lighted in each example. c lubbed at the

Answer 1

Answer 7.2 The functions of authorizing invoices for payment and preparing checks for signature should be organizationally independent.

5. A cashier cashed a check from a customer in payment of an account receivable, pocketed the cash, and concealed the theft by properly posting the receipt to the customer’s account in the accounts receivable ledger.

Answer : Custody of the checks and posting to the Accounts Receivable Ledger should be organizationally independent. In addition, there should be an independent reconciliation of the three items:

1. dollar amounts of the checks received

2. dollar amounts of the checks deposited in the bank

3. dollar amounts credited to customer accounts

6. Several customers returned clothing purchases. Instead of putting the clothes into a return bin to be put back on the rack, a clerk put the clothing in a separate bin under some cleaning rags. After her shift, she transferred the clothes to a gym bag and took them home.

Answer : All purchase returns should be documented by preparing a customer receipt and recording the return in a purchase returns journal. No cash or credit can be given without the return being authorized by a supervisor and recorded in the data files recorded in the cash register.
The purchase returns area should be kept clean and orderly so that returns cannot be "hid" among excess returns. Employees should not be allowed to have gym bags or other personal items that could conceal stolen items in work areas.

7. A receiving clerk noticed that four cases of MP3 players were included in a shipment when only three were ordered. The clerk put the extra case aside and took it home after his shift ended.

Answer : Purchase orders sent to the receiving area should not indicate how many items or cases were ordered, thus helping ensure that all shipments are counted and recorded. The purchasing department should reconcile items received against items ordered.

8. An insurance claims adjuster had check signing authority of up to $6,000. The adjuster created three businesses that billed the insurance company for work not performed on valid claims. The adjuster wrote and signed checks to pay for the invoices, none of which exceeded $6,000.

Answer : The functions of signing checks for invoices, approving vendors, and maintaining the vendor master file should be organizationally independent. Payments should not be made to anyone that is not on the approved vendor list. Controls should be put into place to endure that employees cannot add an unauthorized or unapproved vendor to the vendor master file.