Gines, Joy B.

3BSA-2

Assignment #1

An effective system of internal control includes the segregation of incompatible duties.

Some of the examples presented represent incompatible duties. Commend on the
specific risks (if any) that are caused by the combination of tasks.

a. The treasurer has the authority to sign checks but gives the signature
block to the assistant treasurer to run the check-signing machine.

Due to the integration of tasks, there are no risks. The treasurer is in charge of
keeping track of the assets. The treasurer is not in charge of authorizing or
documenting the transaction. The concept of separation of functions is not
violated by outsourcing the responsibility of signing checks to the assistant
treasurer because the assistant treasurer does not authorize or record
transactions.

b. The warehouse clerk, who has the custodial responsibility over inventory
in the warehouse, may authorize disposal of damaged goods.

Because the warehouse clerk has both custodial and transaction authorization
responsibilities, this situation is illegal. The clerk's authorization power could
be used to record the disposal of stolen goods as damaged products, posing a
risk.

c. The sales manager, who works on commission based on gross sales,

approves credit and has the authority to write-off uncollectible accounts.

Because the sales manager has credit authorization and accounts receivable
record keeping authority, this situation is illegal. The risk is that the manager
will grant credit to a friend or relative's company and then write off the account
as bad.

d. The shop foreman submits time cards and distributes paychecks to the
employees.

Because the time clerk is responsible for both record keeping and asset
custody, this situation is illegal. The risk exists that the time clerk will fail to
register an employee's termination and instead keep the paychecks for himself.
e. The accounting clerk posts to individual account receivable subsidiary
accounts and performs the reconciliation of the subsidiary ledger and the
general ledger control account.

Because the accounting clerk both records transactions and confirms their
accuracy, this setup is illegal. A reconciliation's goal is to ensure that the two
sets of records are identical. The risk is that the accounting clerk will conceal
errors or cover up unbalanced balances as a result of money embezzlement.