Question

11.Good-N-Safe Insurance Agency's finance department has been swamped with claims stemming from a recent hurricane.

True or False? Because they're overwhelmed with work they can justify allowing one of their inspectors, who also happens to be accounting savvy, to process the necessary purchase order, approve the purchase order, make the final approval for payment, and prepare the check to pay for a new Dell laptop that he will be using in the field without violating any of the principles of internal control.

Answer 1

False:-

One of the basic principles of Segregation of Duties which means critical activities in a process should be performed by two or more individuals to prevent fraud and error. In above case, allowing one inspector to perform all the activities from processing the purchase order to making the payment leads to more fraud and error chances.

Maker and Checker check is another key principle of internal control where the preparer and approver should be different individuals. In the above case, one inspector is making the purchase orders and then approving the same, also he’s approving the payment. Just because of more work and less employees in an organisation doesn’t mean that there should be no check on internal control procedure. Even in purchase of new laptop, there should be some supervising authority to check whether the laptop purchased was within the company's policies and guidelines. So, giving one person the sole control over the complete process violates the basic principles of internal control.