Question

Kittner, Inc., is a small company with three people working in the expenditures processes. One of the three employees is the supervisor of the other two. Some tasks that must be accomplished within the expenditures processes are the following:

a. Accounts payable
 record keeping

b. Authorization of new vendors

c. Authorization of purchase returns

d. Authorization of purchases

e. Cash disbursements record keeping

f. Check‐signing authority

g. Custody of inventory in the receiving area

h. Maintaining custody of cash

i. Preparation of a debit memo for a purchase return

 

Required:
Consider the duties you would assign to each of the three employees (supervisor, employee 1, and employee 2). No employee should have more than three tasks, and there should be a proper separation of duties to achieve appropriate internal control. List the three people, the duties you assigned to each, and a description of why those assignments should achieve proper separation of duties.

 

Answer 1

There are likely to be a few possible answers that could be effective. The critical aspect is to try to segregate authorization, custody, and record keeping for related events as much as possible. There is no “perfect” segregation since there are only three employees.

Supervisor: duties F, G, and H. The supervisor would be the most logical person to sign checks, and as such, is responsible for custody of inventory and cash. As a supervisor, he/she can override internal controls so it is not as much a problem that there may be some incompatibility for a supervisor.

Employee 1: duties A, E, I. This places all record keeping and document preparation with employee 1. He/she has no custody or authorization responsibility.

 

Employee 2: duties B, C, and D. He/she can authorize vendors, purchases, and purchase returns, but has no custody or record keeping responsibility.