What is “Separation of Duties?”Separation of duties is the means by which no one person has sole control over the lifespan of a transaction. Ideally, no one person should: Show
There should be at least two sets of eyes on each transaction. Why is it Important?Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person. In addition, separation of duties is a deterrent to fraud because it requires collusion – working with another person – to perpetrate a fraudulent act. What About Small Departments?When separation of duties is not possible due to a small department size, compensating controls must be put in place. Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties. ABCs of Separation of DutiesIn general, no one employee should have job functions in more than one of the following three categories of duties:
How Does it Look?Consider the following in assigning duties to people involved in handling a financial transaction process:
Note: An employee serving in a “back-up” role must be competent and have the same authority as the person normally performing the duty. Example – Cash Handling
*Closing of cash drawer is performed jointly with both coworkers witnessing the count and certifying the deposit amount appearing on the department records/logs. Employee 2 retains and secures the copy of the record/log for ledger review purposes. **Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation Example – Purchase
**Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation Example – Billing and Receivables
Last Reviewed09/30/2022: reviewed content TrainingPRO303 – Internal Controls at UF PST130 – Reconciliation for Tier 1 Internal Controls & Quality Assurance: (352) 392-1321
Which of the following is an effective internal control over accounts receivable?6. Which of the following is an effective internal control over accounts receivable? documents that reduce accounts receivable balances.
What are internal controls for accounts receivable?The purpose of accounts receivable internal controls is to ensure that sales invoices are properly recorded and that customers pay promptly in accordance with the agreed terms of business.
Which of the following is considered to be an effective internal control?The correct answer is B)
A company's control environment is considered the core of an internal control system because it reflects its management and employees' attitude towards requirements and compliance with internal controls.
Which of the following is not an internal control?Answer: c.
Hence, collusion is not a type of internal control.
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