September 7, 2012
Subject: The importance of segregation of duties for a small business This memo is in response to your concern of how your company’s performance improves effectively. A strong internal control will definitely play an important role to achieve your goal. The memo will first explain what internal control is. It is then followed by discussing segregation of duties, which is a key factor of internal control. I also include some examples of how duties can be segregated and benefits of doing so. What is internal control?
Internal control is a system or a procedure that help ensure the implementation of a policy efficiently, safeguard assets; therefore, it helps reduce errors and frauds. An important factor of a strong internal control is segregation of duties within a department and throughout a company Segregation of duties
One employee should not have access to all or related aspects of a transaction. This application helps reduce the opportunity for an employee to commit intentional errors. Here are two examples of segregation of duties: 1. Employees who are in charge of cash deposit should not do the monthly bank reconciliation. 2. Employees who have access to your physical inventory should not also reconcile inventory records. There are ways to integrate segregation of duties into practice. I think it is not very cost effective to have one employee be responsible for one separate duty regarding your business’s size. However, it should not be taken slightly. Segregation of duties can help prevent or detect frauds; thus minimize chances of misleading information in financial statements. There are two possible solutions of how duties can be segregated in your company. There should be a job rotation within the department. Employees are more hesitant to commit fraud since it is not a one-time commitment. Instead, it takes time to cover up the crimes. Another suggestion is to outsource a CPA firm to review...
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