Assume that an independent auditor is auditing the financial statements of a small not-for profit institution. He finds that the information system is handled by one individual who writes checks, records and deposits the cash receipts, and records and posts all transaction entries. The independent auditor suggests that two additional people are needed to provide minimum control for the information system.

a. The directors of the institution agreed to hire two additional people. Suggest how the accounting duties can be divided between the three individuals so as to improve the controls.

b. The directors reject the suggestion of hiring another individual. What effect would this have on the audit?