Question

Chapter 5 of the online text, "Internal Control and Audit Compliance: Documentation and Testing Under the New COSO Framework" discusses the concept of segregation of duties. What does this concept mean? Discuss your current or maybe a former workplace where you noticed that there was a proper segregation of duties or maybe a lack of segregation of duties. What procedure might have helped to strengthen the internal controls?Chapter 5 of the online text, "Internal Control and Audit Compliance: Documentation and Testing Under the New COSO Framework" discusses the concept of segregation of duties. What does this concept mean? Discuss your current or maybe a former workplace where you noticed that there was a proper segregation of duties or maybe a lack of segregation of duties. What procedure might have helped to strengthen the internal controls?

Answer 1

Segregation of duties means work done by one person should be automatically checked by another person in the normal course of business so that their possibility of fraud is minimised

Following are the events which causes risk/fraud exists in workplace

(1) Weaknesses in the design of internal control system and non-compliance with the laid down control procedures,

e.g., a single person is responsible for the receipt of all dak and marking it to the relevant sections or two persons are responsible for receipt of dak but the same is not followed in actual practice, etc.
(2) Doubts about the integrity or competence of the management, e.g., domination by one person, high turnover rate of employees, frequent change of legal counsels or auditors, significant and prolonged understaffing of the accounts department, etc.
(3) Unusual pressures within the entity, for example, industry is doing well but the company is not performing accordingly, heavy dependence on a single line of product, inadequate
working capital, entity needs raising share prices to support the market price in the wake of public offer, etc.
(4) Unusual transactions such as transactions with related parties, excessive payment for certain services to layers

" The following procedure helps in strengthing internal control system in an organisation are"

(1) Every member of the staff should be encouraged to go on leave at least once in a year so that frauds successfully concealed by such a person can be detected in his absence.
(2) Persons having physical custody of assets must not be permitted to have access to the books of accounts.
(3) There should be an accounting control in respect of each important class of assets, in addition, these should be periodically inspected so as to establish their physical
condition.
(4) The system of Budgetary Control should be introduced.
(5) For inventory-taking, at the close of the year, trading activities should, if possible, be suspended. The task of inventory taking, and evaluation should be done by staff
belonging to other than inventory section.
(6) The financial and administrative powers should be sub divided very judicially and the effect of such division should be reviewed periodically.
(7) Finally, the system must be capable of being expanded or contracted to correspond to the size of the concern.

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