For each of the following situations, write a brief evaluation of the segregation of duties implemented by the company and indicate the following:
a. Any deficiency in the segregation of duties described. (Indicate None if no deficiency is present.)
b. The potential errors or irregularities that might occur because of the inadequate segregation of duties.
c. Compensating, or other, controls that might be added to mitigate potential misstatements.
d. A specific audit test that ought to be performed to determine whether a misstatement in an account balance had occurred.
Situations:
1. The company's payroll is computerized and is handled by one person in charge of payroll who enters all weekly time reports into the system. The payroll system is password XXXXX so that only the payroll person can change pay rates or add/delete company personnel to the payroll file. Payroll checks are prepared weekly, and the payroll person batches the checks by supervisor or department head for subsequent distribution to employees.
2. XYZ is a relatively small organization but has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account.
3. Nick's is a small family-owned restaurant in a northern resort area whose employees are trusted. When the restaurant is very busy, any of the waitstaff has the ability to operate the cash register and collect the amounts due from the customer. All orders are tabulated on "tickets." Although there is a place to indicate the waiter or waitress on each ticket, most do not bother to do so, nor does management reconcile the ticket numbers and amounts with total cash receipts for the day.
4. A purchasing agent for JC Penney has the responsibility for ordering specific products, e.g., women's clothes, and setting the prices for those products. The purchasing agent is eligible for a bonus based on the profitability of his or her line of business. The receipt, demonstration, and sale of goods are handled by individuals who are separate from the purchasing agent.
5. Bass Pro Shops takes customer orders via a toll-free phone number. The order take sits at a terminal and has complete access to the customer's previous credit history and a list of inventory available for sale. The order clerk has the ability to input all the customer's requests and generate a sales invoice and shipment with no additional supervisory review or approval.