For each of the following situations (indicated A. through G. below), evaluate the segregation of duties implemented by the company and indicate the following:
a. Any deficiency in the segregation of duties described. (Indicate "None" if no deficiency is present.)
b. The potential financial statement misstatements that might occur because of the inadequate segregation of duties.
c. Compensating, or other, controls that might be added to mitigate potential misstatements.
A. The company's payroll is computerized and is handled by one person in charge of payroll who enters all weekly time reports into the system. The payroll system is password protected so that only the payroll person can change pay rates or add/delete company personnel to the payroll file. Payroll checks are prepared weekly, and the payroll person batches the checks by supervisor or department head for subsequent distribution to employees.
B. A relatively small organization has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account.
C. Nick's is a small family-owned restaurant in a northern resort area whose employees are trusted. When the restaurant is very busy, any of the servers have the ability to operate the cash register and collect the amounts due from the customer. All orders are tabulated on "tickets." Although each ticket has a place to indicate the server, most do not bother to do so, nor does management reconcile the ticket numbers and amounts with total cash receipts for the day.
D. A sporting goods store takes customer orders via a toll-free phone number. The order taker sits at a terminal and has complete access to the customer's previous credit history and a list of inventory available for sale. The order clerk has the ability to input all the customer's requests and generate a sales invoice and shipment with no additional supervisory review or approval.
E. The purchasing department of Big Dutch is organized around three purchasing agents. The first is responsible for ordering electrical gear and motors, the second orders fabrication material, and the third orders nuts and bolts and other smaller supplies that go into the assembly process. To improve the accountability to vendors, all receiving slips and vendor invoices are sent directly to the purchasing agent placing the order. This allows the purchasing agent to better monitor the performance of vendors. When approved by the purchasing agent for payment, the purchasing agent must forward (a) a copy of the purchase order, (b) a copy of the receiving slip, and (c) a copy of the vendor invoice to accounts payable for payment. Accounts payable will not pay an invoice unless all three items are present and match as to quantities, prices, and so forth.
The receiving department reports to the purchasing department.