Question

Which statement below best exemplifies the principle of segregation of duties?

• A : The company ensures a separation between the retail and accounting departments.

• B : The company allows its salesmen to approve and record client credit.

• C : The company’s management is allowed to approve their own allowances and write-offs.

• D : The company’s retail division uses cash registers and regular daily inventory counts.

Answer 1

(A) "The company ensures a separation between the retail and accounting departments" is the correct alternative which exemplifies the principle of segregation of duties .

Explanation : If there is no differentiation and separation of authority & duties in between employees of retail and accounting departments , then both department's employees  can easily access the accounting data, information and physical units of products as well in any point of time, which makes the  chances of fraud and manipulation.

Employees of Retail department may be allowed for customer service , physical inventory control , training newcomers etc .

Where as accounting department personnel have the responsibility to maintain books of accounting records , managing cash , giving approval and record of client credit and they can only access the accounting software password to maintain authentic accounting records.

This separation of duties reduces the chances of fraud and manipulation .This is an example of segregation of duties in between different departments ( Accounting and retail departments), where everybody knows what is the their operational limitations .

Why the rest of the options are not correct ?:

B) If salesmen are allowed to approve and record client credit , then to increase sales and get more sales commission ,they can easily extend credit at the time of sales to customers , even to those , who are having very poor credit score and track records. Which will destroy the company in near future . Generally approving and recording customer credit is the function of accounting department, it is not the duty of sales department . So it doesn't depicts segregation of duties .

C) If the management approves their own allowances and write offs then there will be no one to control and verify such expenditures , it should be the duties of the accounting department. So, this is not a story of segregation of duties as well.

D) Physical inventory control and count is the responsibility of retail department but they can't access cash register. Only accounting department can access cash register. If retail department can access cash register and can control inventory count then there will be a consequence of fraud .It is not an example of segregation of duties .

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