Authorization and Control Theory
Considering the many components that make up an organization’s internal controls, choose a specific internal control and explain in detail when and why it should be put in place. What is the controller’s role and level of involvement in this process? Support your choice with examples.
Overall internal controls for an organization are crucial for sound financials and operations. It is management responsibility for maintaining adequate internal control and it should start at the top; either from the chief financial officer or controller. A specific internal control I personally believe is one of the most important is separation of duties.
Separation of duties is defined as not one person has sole control over an entire transaction or ideally no one person in the organization should be able to initiate, record, authorize, and reconcile a transaction. The main purpose behind separation of duties assist with assuring mistakes intentional or unintentional is not made without being detected by another member in the organization. The controller should have an active role in this process, first ensuring that separation of duties is being carried out within the organization and he or she is also participating in this internal control. For example the controller should not be signing off on invoices approving the order and purchase and then signing the checks for that invoice payment. This is a good example of how separation of duties can limit and prevent fraud. No there is never a prevention for collusion as we know from famous fraud scandal.
Hi Amanda,
Great post, I agree with you as I mentioned separation of duties, same meaning different word choice. I agree that segregation of duties is difficult within smaller organization; however there should be other internal controls in place to help minimize the risks in these cases. Such as checks and authorization or required approval checks. In my organization we have one person recording the AP transactions and cutting
Overall internal controls for an organization are crucial for sound financials and operations. It is management responsibility for maintaining adequate internal control and it should start at the top; either from the chief financial officer or controller. A specific internal control I personally believe is one of the most important is separation of duties.
Separation of duties is defined as not one person has sole control over an entire transaction or ideally no one person in the organization should be able to initiate, record, authorize, and reconcile a transaction. The main purpose behind separation of duties assist with assuring mistakes intentional or unintentional is not made without being detected by another member in the organization. The controller should have an active role in this process, first ensuring that separation of duties is being carried out within the organization and he or she is also participating in this internal control. For example the controller should not be signing off on invoices approving the order and purchase and then signing the checks for that invoice payment. This is a good example of how separation of duties can limit and prevent fraud. No there is never a prevention for collusion as we know from famous fraud scandal.
Hi Amanda,
Great post, I agree with you as I mentioned separation of duties, same meaning different word choice. I agree that segregation of duties is difficult within smaller organization; however there should be other internal controls in place to help minimize the risks in these cases. Such as checks and authorization or required approval checks. In my organization we have one person recording the AP transactions and cutting