Segregation

Function
(CMA 1288 3-

An effective system of internal control includes

the segregation of incompatible duties. Some of
the examples presented represent incompatible
a. The Comment
treasurer
the authority
to that
sign
duties.
on has
the specific
risks (if any)
but
the signature
arechecks
caused by
thegives
combination
of tasks. block to
the assistant treasurer to run the checksigning machine.
Response:
No risk is associated since the mere signing of
checks does not imply that it is also authorized
or recorded by both the treasurer and assistant
treasurer. The delegation of check signing isnt
a control violation since its duty is separate
from its related process.

b. The warehouse clerk, who has custodial

responsibility over inventory in the warehouse,
may authorize disposal of damaged goods.
Response:
Internal control in this case should be assessed as
weak and vulnerable to asset misappropriation. The
dual responsibilities of the warehouse clerk may
potentially involve fraudulent activities since the
authorization and custodial task should be
separated. In this situation, it is possible for the
warehouse clerk to record stolen goods as damaged
goods.

c. The sales manager, who works on

commission based on gross sales, approves
credit and has the authority to write off
uncollectible accounts.
Response:
A violation is in existence since the credit
approval
and
the
uncollectible
accounts
management duty is normally delegated. The
possible risk is overriding credit limits or writing
off accounts to merely accept a transaction with
a friend or relative.

d. The shop foreman submits time cards

and
distributes
paychecks
to
employees.
Response:
This situation is an example of possibly
creating a ghost employee. He could simply
submit a timecard of a terminated employee
and keep the paychecks for himself since he
also has the task of distributing the
paychecks.

e. The accounting clerk posts to individual

account receivable subsidiary accounts and
performs the reconciliation subsidiary ledger
and the general ledger control account.
Response:
Risk for cash misappropriation is high in this case
since he/she could easily manipulate the records since
he has access to recording thats supposed to be
separate. One could easily cover up for his fraudulent
actions. Though, for a significant misappropriation, one
must have an accomplice for the handling of cash.