Question

Describe what segregation of duties means to you.

How can management effect the control environment of a company?

Answer 1

A person owning completely a particular duty may result in him misconducting it either due to manual error or because of an intention of fraud. More importantly a duty of dealing with cash which consists of heavy risk should not be assigned to one person. The authority to disburse cash and to account it on books should be segregated between two persons. As an organization is growing bigger, the responsibilities will become higher and diversified. Hence the risk of segregation of duties will also be increased.

How would segregation of duties help:- A person who has an intention to commit a fraud by misuse of funds will be identified immediately by the book keeper since he would be matching the balance as per books with physical cash. Also person who is processing the invoice of a company should not be processing payment also since he may process fake invoices and process the payment for the same.

Management is the primary responsibility to establish and ensure the controls are in place in any organization. Management has capability to override the controls for the benefits of management. How ever by implementing strong Segregation controls the same can be prevented. To ensure the healthy control environment, management has to establish a control framework which has to be reviewed periodically. To ensure they are operating effectively the controls has to be tested and necessary mitigating control should be bought into place so that the risks and the losses are minimum.