Segregation of duties is an important concept in internal control. However, segregation of duties is often a challenge for smaller businesses because they do not have sufficient staff to segregate duties. Normally, the segregation of duties identified below results in either a significant deficiency or a material weakness in internal control.
For each “segregation of duties: problem identified here:
a. Identify the risk to financial reporting that is associated with the inadequacy of the segregation of duties.
b. Identify other controls that might mitigate the segregation of duties risks.
c. If a control is identified that would mitigate the risks, briefly indicate what evidence the auditor would need to gather to determine that the control is operating effectively.
1. The same individual handles cash receipts, the bank reconciliation, and customer complaints.
2. The same person prepares billings to customers and also collects cash receipts and applies them to customer accounts.
3. The person who prepares billings to customers does not handle cash, but does the monthly bank reconciliation, which, in turn, is reviewed by the controller.
4. A start-up company has very few transactions, less than $1 million in revenue each year, and has only one accounting person. The company’s transactions are not complex.
5. The company has one computer person who is responsible for running packaged software. The individual has access to the computer to update software and can also access records.