Why should the responsibility for maintaining the accounting records be separated from the responsibility for operations explain?

School Columbia Southern University
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9. Why should the responsibility for maintaining the accounting records be separated from the responsibility for

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10. Assume that Yvonne Dauphin, accounts payable clerk for Bedell Inc., stole $73,250 by paying fictitiousinvoices for goods that were never received. The clerk set up accounts in the names of the fictitious companiesand cashed the checks at a local bank. Describe a control procedure that would have prevented or detected

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11. Before a voucher for the purchase of merchandise is approved for payment, supporting documents shouldbe compared to verify the accuracy of the liability. Give an example of supporting documents for the purchase

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12. The accounting clerk pays all obligations by prenumbered checks. What are the strengths and weaknesses

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What is “Separation of Duties?”

Separation of duties is the means by which no one person has sole control over the lifespan of a transaction. Ideally, no one person should:

Initiate the transaction
Approve the transaction
Record the transaction
Reconcile the transaction
Handle the related asset
Review reports

There should be at least two sets of eyes on each transaction.

Why is it Important?

Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions.

All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person. In addition, separation of duties is a deterrent to fraud because it requires collusion – working with another person – to perpetrate a fraudulent act.

What About Small Departments?

When separation of duties is not possible due to a small department size, compensating controls must be put in place. Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties.

ABCs of Separation of Duties

In general, no one employee should have job functions in more than one of the following three categories of duties:

Asset handling and disposition: Having physical access to University assets or being in a position to control where an asset is directed
- Assets include cash, tickets and passes, PCards, supplies, equipment, books, vendor and payroll checks, and purchase orders
- Directing an asset includes initiating a vendor or payroll payment in myUFL, setting up a new employee in the Human Resources Management System (HRMS), making an adjustment to a student account transaction, placing an order for supplies, distributing payroll checks, and specifying where supply orders are to be delivered
Booking or recording transactions to the myUFL general ledger or subledger: Recording or posting a financial transaction to the myUFL general ledger
- The recording of financial transactions in myUFL occurs when a vendor invoice, direct payment, or journal is approved
Comparison or review of transactions or balances: Reconciling and reviewing transactions appearing in the myUFL general ledger for validity and reasonableness
- Monthly reconciliation is required as a key internal control to ensure the accuracy of data in myUFL – the official accounting record of the university of Florida

How Does it Look?

Consider the following in assigning duties to people involved in handling a financial transaction process:

The preferred number of people that should be involved in handing a financial process is three of more – at this staffing level, satisfactory separation of duties can be attained fairly easily
The minimum number of people who can successfully operate a financial process is two – at this staffing level, satisfactory separation of duties can be attained, but not without careful planning
- For some processes, certain duties might have to be performed jointly by both staff members
A person involved in more than one financial process should be assigned duties within the same duty category, such as asset handling, across the different processes. For example, people with asset handling duties in the cash handling process should be assigned only asset handling duties in other financial processes.

Note: An employee serving in a “back-up” role must be competent and have the same authority as the person normally performing the duty.

Example – Cash Handling

Responsibility	Duty Category	Ideal: 4 Person	Good: 3 Person	Minimal: 2 Person
Cash receiving (cashiering) and counting cash as part of the cash drawer closing process	Asset handling	Employee 1	Employee 1	Joint – Employees 1 and 2*
Deposit preparation and the recording of cash receipt on deposit records/logs	Booking	Employee 2	Employee 2	Joint – Employees 1 and 2*
Recording the deposit in myUFL	Booking	Employee 3	Employee 3	Initiation: Employee 1 Approval: Employee 2
Making the cash deposit at the University Cashier’s Office	Asset Handling	Employee 1	Employee 1	Employee 1
Comparing cash deposits recorded in the general ledger to deposit amounts appearing on copies of departmental records/logs	Comparison/Review	Employee 4	Employee 3	Employee 2**

*Closing of cash drawer is performed jointly with both coworkers witnessing the count and certifying the deposit amount appearing on the department records/logs. Employee 2 retains and secures the copy of the record/log for ledger review purposes.

**Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation

Example – Purchase

Responsibility	Duty Category	Ideal: 4 Person	Good: 3 Person	Minimal: 2 Person
Order initiation	Asset handling	Employee 1	Employee 1	Employee 1
Order approval	Booking	Employee 2	Employee 2	Employee 2
Confirmation of receipt of good	Asset Handling	Employee 3	Employee 1	Employee 1
Payment of invoice	Booking	Employee 2	Employee 2	Employee 1
Ledger review and certification	Comparison/Review	Employee 4	Employee 3	Employee 2**

**Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation

Example – Billing and Receivables

Responsibility	Duty Category	Ideal: 4 Person	Good: 3 Person	Minimal: 2 Person
Review and approval of billing data included on bills	Booking	Employee 1	Employee 1	Employee 1
Billing adjustment issuance, including account credit issuance and bad debt balance write-off authorization	Asset Handling	Employee 2	Employee 2	Employee 2
Billing adjustment transaction ledger or billing system recording payment	Booking	Employee 3	Employee 1	Employee 1
Comparison of AR balance recorded in the general ledger to the total billings reflected in the billing system or records	Comparison/Review	Employee 4	Employee 3	Employee 2

Last Reviewed

04/30/2022: reviewed content

Training

PRO303 – Internal Controls at UF

PST130 – Reconciliation for Tier 1

Internal Controls & Quality Assurance: (352) 392-1321

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Why is it important to separate accounting from asset control and operations?

Separate custody of assets from accounting. This is the most important type of separation because it protects an organization from fraud. A good accounting system enables an individual to trace a transaction from beginning to end i.e., 'having a good audit trail'.

The responsibility for a transaction should be divided between two or more individuals or departments to ensure that the work of one acts as a check on the other. Absent this, someone could create fictitious invoices and pay the money to herself or himself.

Why is it important to have segregation of duties?

Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person.

What accounting duties should be separated?

The separation of duties concept prohibits the assignment of responsibility to one person for the acquisition of assets, their custody, and the related record keeping. For example, one person can place an order to buy an asset, but a different person must record the transaction in the accounting records.