Question

The proper segregation of duties is an important control activity in all businesses. Analyze the following scenario to properly apply the concepts of segregation of duties. The cashier of Blanchard Industries opens the mail containing customer payments. He then performs the following procedures Makes a list of all payments received Prepares a deposit slip and takes the deposit to the bank Records the cash received in the customer account records Makes any necessary adjustments to customer account records to correct any errors or discrepancies Based on these facts, does Blanchard Industries have adequate segregation of duties relative to the receipt of cash payments and the recording of customer accounts? Briefly explain your answer.

Answer 1

No, the Blanchard industries does not have adequate segregation of duties relative to the receipt of cash payments and recording of customer accounts.

Explanation for the above mentioned statement :-

1. The basic internal control to the employees of every organization is no activity in the organization should be completely under the control of one person . This is not satisfied by the blanchard company.

2. Here in the given case the cash receipts and maintainance of debtor accounts and depositing of the cash into bank. All the three activities are under control of only one person.

3. This leads to lenience to the employee for making fraud in the cash .

4. If the person do the teeming and lading frauds there is no chance of being detected by mangement or by auditor due to complete control is in the hands of one employee.

5. Teeming and lading means if any debtors pay his debt to the company i.e to that employee and employee receipts the cash and will not make any adjustments in books of accounts and that amount is utilised by that employee and after another debtor pays imbis dues and now the employee received cash and made adjustments in books of accounts for the 1st paid debtor.

6. In this case the 1st paid debtors balance was nill in books and second paid debtor balance is still pending like this way he does it repeatedly on receipt of 3rd debtor amount he adjust the amount to 2nd debtor. If this continuous for a long time qe are not able to find this fraud due to entire control is under one employee.

The segregation of duties to be as follows :-

1. The receipt of cash and deposit of cash should be at one employee and recording of these activities in the books of accounts are understand other employee and both of the activities to be checked by other employee.

2. So by following the above segregation of duties we get the i information accurately .

3. If the employee receiving the cash has made fraud he will be automatically detected by checking the balance of debtors in books of account.

4. So the above segregation of duties is well suited to Blanchard industries.

These are all the information about the given situation. And the suitable segregation of duties also given in the explanation.

If you have any doubts please mention them in comment box .

I hope, all the above mentioned points and explanations are useful and helpful to you.

Thank you.