Question

Segregation of duties is an important internal control. What functions must be separated? If ideal segregation of duties is not economically feasible, what are some compensating controls that would help reduce the risk of fraud or error?

Answer 1

As per the given question,

Step:1

It Is a Set Of Procedure or System to enhance the Utilization and Safety Measure of Organization's asset. it also Company the Regulations and laws as its main aim. Generations of accurate information to use in Decision Making or for analysis of financial position or for the formation of Competitive Policies

Step:2

Internal Controls are the Controlling processes, policies and Checks that Required in the case of Business Expansion .Such Controls can be Related to Human or the IT or Both. Internal Controls are Critical for Accounting, Management and Maintenance of Assets. The System of Internal Controls, Includes Separation of Duties Which assures that no one can Receive the knowledge of the Whole procedure .

Step:3

Segregation of Duties (SOD): it is a key Function of the internal Control to Safeguard the assets. it has mainly two key objectives. firstly, it ensures that there is a controller for the avoidance of errors. secondly, it helps in preventing Deliberate Misappropriation of Resources because it  ensures that nobody can Attain the entire knowledge about every transaction.

there are thre main functions which can be Separated under the SOD Separates has named as under

1. Custody of Assets

2.Authorization of the use of Assets

3. Maintaining record of Assets

the above functions can be Segregated on th basis of General Guide Line for the SOD.

Step:4

The SOD is Difficult for the small Business firms Because of Lack of Funds for retaining the large number of employee-staff. In such situation, the organization can adopt suitable preventive internal controls and compensation control.

Thus, the periodic supervision can be used to alleviate the risk raised from the inappropriate SOD, in case where the ideal SOD has not feasible in economic terms. The assignment of duty on the part of superior authority for the purpose of individual supervision whereas the owner can perform the function of top management in case of small business