For each of the following situations, 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 errors or irregularities that might occur because of the inadequate segregation of duties
c. Compensating, or additional, controls that might be added to the process to mitigate potential misstatements
d. A specific audit test that ought to be performed to determine whether the potential misstatement had occurred
Situations
1. The company's payroll is computerized and is handled by one person in charge of payroll who is responsible for keying all weekly time reports into the computer 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.
2. XYZ is a relatively small organization but has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account.
3. 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 waitresses has the ability to operate the cash register and collect the tab.
All orders are tabulated on "tickets."Although there is a place to indicate the waiter or waitress on each ticket, most do not bother to do so.
4. Bred-ford Manufacturing is an audit client with approximately $16 million in annual sales. All of its accounting is performed on a high end microcomputer located in a separate office area in the accounting department. The microcomputer has three terminals, one in the controller's department (used mostly for analysis purposes), one in the assistant accountant's area (individual is responsible for all accounting except cash receipts and sales billing), and one in the office of the individual responsible for billing and cash receipts. The office housing the microcomputer is locked each night when the controller leaves, but if the office is behind in processing, she often leaves it open for the sales clerk to work overtime and catch up on processing.
5. Bass Pro Shops takes all customer orders over 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 then generate a sales invoice and shipment with no additional supervisory review or approval.
6. 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.
7. The employees of Americana TV and Appliance are paid based on their performance in generating profitable sales for the company.
Each salesperson has the ability to determine a sales price (within specified but very broad parameters). Once a sales price has been negotiated with the customer, an invoice is prepared. At the close of the day, the salesperson looks up the cost of the merchandise on a master price list. The salesperson then enters the cost of the merchandise on the copy of the invoice and submits it to accounting for data entry and processing. The salesperson's commission is determined by the gross margin realized on sales.