...Management, Planning and Organization of IS ISACA PROFESSIONAL RESOURCES SEGREGATION OF DUTIES WITHIN INFORMATION SYSTEMS This is an excerpt from the CISA Review Manual 2005 Chapter 2 - Management, Planning and Organization of IS CISA Review Manual 2005 - Pages 88-91 The entire publication and other exam study material can be purchased through the ISACA bookstore at www.isaca.org/cisabooks. CISA® REVIEW MANUAL SEGREGATION OF DUTIES DISCLAIMER ISACA has produced this publication as an educational resource to assist individuals preparing to take the CISA Certification Exam. It was produced independently from the CISA Certification Board, which has no input into or responsibility for its content. ISACA makes no claim that the Segregation of Duties Control Matrix is an industry standard. The material is solely intended as a general guideline to assist in identifying potential conflicts. Functions, designations, nature of business processes, technology deployed and risks may vary from one organization to another. In determining the proper controls, the IS auditing professional should apply his or her own professional judgment to the specific circumstances presented within an enterprise or information technology environment. CISA Review Manual 2005 1 Chapter 2 SEGREGATION OF DUTIES WITHIN IS Actual job titles and organizational structures may vary greatly from one organization to another, depending on the size and nature of the business. However, it is important...
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...supervising of employees, who can ensure that employees are following proper protocol. The cash only moves between the employees working registers and the couple who are managing the business, so it would not be difficult for an employee to abuse this lack of controls by destroying receipts and taking cash for themselves. To combat this, Mr. Fernandez can also hire or designate an employee to specifically handle cash counts before the money transfers from the employee handling the registers to the couple. This would allow the owner to know that the cash isn’t being mishandled, as there would be records of cash both at the beginning and end of the shifts. AU Section 315 (2012) stresses the importance of segregation of duties, and creating positions that act as middle-men for money would enable this segregation by ensuring there are more unbiased individuals handling the cash each day. The second issue that arises comes from the part-time staff, and their potential chances to commit fraud. When dealing with items such as the café, you are allowing these employees opportunities to commit both fraud against your business by taking cash for personal use. For this, it is important that Mr. Fernandez put in place a strong code of ethics policy, and to ensure that there are individuals in place who are training the employees to follow these standards. When it is difficult to remove opportunity for fraud, it is impertinent that the business remove any form of rationalizations that employees...
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...LBJ Company Internal Controls Assessment Report October 6, 2012 Table of Contents Introduction: 3 Considerations 3 Importance of Internal Controls 3 LJB Internal Control Assessment 3 Conclusion 4 Bibliography: 5 Introduction: LJB Company has engaged RR Accounting Firm to evaluate their current system of internal controls as LJB Company is planning to go public. Public companies have additional responsibility to shareholders and investors and must ensure integrity over their financial statements by maintaining a strong and effective internal control environment. The purpose of this report is to provide an objective analysis of the control environment of LBJ Company. This report will discuss importance of internal controls and identify both the current strengths and the current weaknesses in LJB Company's control environment within the following sections: 1. Compliance with Federal Regulations on Internal Controls for Public Companies. 2. Importance of Internal Controls. 3. Assessment of Internal Control Environment at LBJ Company. (a) Governance - Tone at the top (b) Segregation of Duties (c) Documentation Procedures (d) Physical Security (e) Human Resources 1. Compliance with Federal Regulations on Internal Controls for Public Companies As LJB Company is considered to be a small organization, going from private owned to public traded will require extensive planning. During...
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...Internal Controls Internal controls are those measures implemented by organizations for purposes of protection of resources against threats such as fraud, inefficiency, and waste. In addition, its purpose is evaluation of performance in all units; ensuring policy compliance and preparation of accurate and reliable accounting data. Internal control operates under five components and six principles; the five components namely; control environment, information and communication, control activities, and risk assessment. The six principles of control activities are; establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verification and human resource control (Kimmel, pg. 338, Straus 2008). The adequacy and effectiveness of any organization’s internal control is examined by the internal audit office. Its success is strengthened by reviews and recommendations from the internal auditing. The internal control requirements for the LJB Company to adhere before it goes publics will be addressed and it must be in accordance with Sarbanes-Oxley Act of 2002 (SOX.) All publicly traded corporations are required to preserve a satisfactory internal control system. Corporate presidents and administrators must ensure these controls are dependable and efficient. LJB Company needs to establish adequate internal control principles, whether it goes public or not (Kimmel, pg. 337, Straus 2008). The interest of LJB to go...
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...2009). This document analyzes both LJB Company strengths and weaknesses and provides recommendation on internal control measures. Internal control is measures adopted within an organization to safeguard its assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations (Kimmel, Weygandt, Kieso, 2009). This document analyzes both LJB Company strengths and weaknesses and provides recommendation on internal control measures. TABLE OF CONTENTS Introduction * Overview of Internal Controls * Importance of Internal Controls * The Sarbanes-Oxley Act of 2002 (SOX) Components of Internal Controls * A control environment * Risk assessment * Control activities * Information and communication * Monitoring Principles of Internal Control Activities * Establishment of responsibility * Segregation of duties * Documentation procedures * Physical controls * Independent internal verification * Human resource controls Good Internal Controls by LJB Company * Principles applied * Recommendations Internal Control Violations by LJB Company * Principles applied * Recommendations Summary and Conclusion * * Introduction Overview of Internal Controls Internal controls are systemic measures (such as...
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...Checklist for Evaluating Internal Controls Darius Perrin ACC/544 Checklist for Evaluating Internal Controls According to Investopedia (2013), internal controls are methods implemented by a company to ensure the organization is meeting their profitability targets efficiently while also keeping the integrity of the company. The following discussion will outline the three phases of the control evaluation which is understanding the documenting the internal control, assessing the control risks, and performing tests of the controls and reassessing control risks. Phase 1: Understand and Document Internal Control Phase 1 allows the auditors to work efficiently by getting a basic understanding of the organizations internal control. There are five components to internal control: control environment, risk assessment, control activities, monitoring, and information and communications. The following checklist will allow the audit team to gather evidence and focus their efforts in reviewing what aspect is at more risk and requires more review (Louwers, 2007). Yes/No Comments Control Environment Evaluation 1. Is there a written code of conduct displayed for employees to view? Yes 2. Are all employees aware for their goals as an individual? Yes 3. Is there a written document describing each employee’s job description? Yes 4. Would you consider your financial reporting attitude to be conservative? Yes 5. Are actions taken when an employee is found acting...
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...The Importance of Proper Internal Controls Lewis W. Wilson Jr. Post University College Abstract In the field of accounting, one important aspect of any business is their internal controls. Internal controls are defined as “a means by which an organization’s resources are directed, monitored, and measured” (http://en.wikipedia.org/wiki/Internal_control). Here in the United States, the Financial Accounting Standards Board (FASB) is responsible for setting the generally accepted accounting principles (GAAP) that must be adhered to by all companies and organizations within the states. Therefore, I have chosen to write a report to a client explaining the importance of following those rules and regulations set forth by FASB. Importance of Proper Internal Controls August 6, 2014 No Internal Control Corp. – NIC Systems Mr. John Doe Director of Finance, NIC Systems 1313 Mockingbird Lane Transylvania, CT 06666 Mr. Doe, This letter is in reference to our recent conversation, August 2, 2014, concerning the importance of implementing adequate Internal Controls at your organization. We feel we can better represent our clients and are obligated as your representative to insure we have an understanding of your internal controls and processes. Although we may not want to envision acts of fraud, employees that have been employed with organizations...
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...Bubba Tech, inc (BTI) [Study Case] QUESTION 1 Based on the limited facts of this case, prepare a list of the operational issues to present the top management at BTI. Include in your list any corporate governance issues of importance in relation to the management of BTI after it becomes a public company and any issues related to the relationship between BTI and Randy Burnham & Co. ANSWER: Referring to the case of Bubba Tech, Inc. (BTI), there are several operational issues to be presented to the top management at BTI which concerning the corporate governance and issue related to the relationship between BTI and Randy Burnham & Co. The operational issues that can be highlighted are the issue of working with potentially biased audit firm, lack of internal control and lack of corporate governance. The chief financial officer (CFO) of BTI, Willie Carson was once an employee of the Randy Burnham & Co., an accounting firm that is currently acting as the auditor for BTI. The relationship between Carson and the auditors from Randy Burnham & Co. may cause a conflict of interest. A conflict of interest is a situation in which private interests or personal considerations could affect or to perceived to affect both Carson and the auditors from Randy Burnham & Co. judgements to act in the best interests of BTI. The relationship of Carson and the auditors may influence the judgement and the decision relevancy that creates many of the conflict of interest problems in the business. For...
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...IT General Controls Risk Assessment Report Foods Fantastic Company Thomas Woods 12/7/2012 ------------------------------------------------- Background: ------------------------------------------------- In accordance with our IT audit plan, the Foods Fantastic Company (FFC) Audit Team has performed an ITGC review of the 5 critical ITGC areas and in-scope applications so as to enable the audit team to follow a controls-based audit approach and be able to rely on the IT controls in place at FFC. FFC is a publicly traded, regional grocery store located in the mid-Atlantic region which relies on many state-of-the-art IT systems and software and which are all managed in-house. Purpose: We hope to gain comfort that FFC’s systems, IT practices, and risk management procedures are working properly and are operationally effective within a well-controlled IT environment and to meet the requirements that are outlined in SAS 109 and SOX Section 404 Management Assessment of Internal Controls. Considering that the FFC IT environment has a direct impact on the account balances and financial statements, it is imperative that we provide assurance over IT controls prior to the financial statement audit and assess the risk of material misstatement in the different areas of the IT environment. Scope: ------------------------------------------------- Our team initially reviewed key provisions included in SAS 109, SOX Section 404, PCAOB Auditing Standard No.5, and FFC policies...
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...statement restatements according to a report issued by the Government Accountability Office (Louwers et al, 2007). The improper recording of costs and expenses are due to errors as well as fraud. To prevent errors and fraud, proper controls for outflows should be performed. This proposal seeks to provide recommendations and explanations of controls in the areas of purchasing, accounts payable, cash disbursements, finance, investment, and payroll. Purchasing Purchases are made based on an organization’s needs and are therefore a key component in business. The following internal control practices can help to alleviate risk and reduce fraud: • Segregation of duties • Accountability through authorizations and approvals • Security of assets • Review and reconciliation Segregations of duties can be implemented by assigning related purchasing functions to different people. This ensures that no person has complete control over all buying functions. The safest practice is to have different employees to approve purchases and receive goods that have been ordered. Also, different people should approve invoice payments, conduct inventory counts, and perform a financial records review. Without this separation, the potential for theft and fraud increases. The business can maintain accountability by authorizing and approving purchases based on purchase orders and signed contract agreements. This is done by 1.) ensuring that employees...
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...MEMO To: Partner, Eagle Construction Corporation (EC) From: CPA, Audit Senior Re: EC Draft Audit Plan Analysis of New Accounting Issues Patent Foundation Process I - “[An engineer inspector] expressed concerns regarding the quality of the foundation process in a letter sent to EC. To date in the US, EC has only built single unit projects that did not use the process.” G - An intangible asset shall be recognised if, and only if: (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and (b) the cost of the asset can be measured reliably. R - Risk - Procedures- Hire patent evaluator to determine economic benefit. Inventory Valuation I - Due to the “Doing What You Do” Program, “[a manager] incorrectly authorized the purchase of $900,000 of construction project materials as a result of misunderstanding a submitted purchase request. To make matters worse, the price of these particular construction project materials has recently declined 25% due to increased overseas competition.” G - Inventory is valued at the lower of cost or market value. The inventory is being held at cost, however, due to the increased competition, inventory value has decreased. The inventory should be valued at the market because it is the lowest value, therefore this condition is not met. R - Inventory should be written down by 25%, or $225,000 due to the exchange rate decline. However, management will be reluctant...
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...controls on cash first, before any other segment. Cash is a liquid asset, making it easy for thieves to put it in their pocket and leave without any traceability. To avoid theft of cash, a good control system has two or more people handle the cash from customers, endorse checks immediately after receiving, make lists of cash receipts right away, and separate the cash from the bookkeeping documents (Louwers, Ramsay, & Strawser, 2011). Companies should make bank deposits daily, leaving no money withheld from the deposit. When processing cash receipts, employees should follow company policies and procedures laid-out for them at time of hire. Accountants, who are handling the receipts, should never handle the actual cash as a separation of duties. More than one employee should compare accounts receivable balances to check for errors. A test of controls is a procedure a company can perform to determine whether the control activities are working properly. This test will examine, trace, observe, scan, and recalculate the...
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...thing LJB must look at if the company decides to go public is the most basic component of the internal control system both in the environment as well as its control activities. In the environment the President of LJB mush make sure that his employees value integrity and understand that all unethical activity will not be tolerated. When looking at the control activities, the President should understand the importance of controlling the activities of the company. He must understand the importance of preventing fraud. The president must also know that in order to reduce the occurrence of fraud he should have policies and procedures in place to address the specific risks faced by the company and going back to environmental controls, the President should also make it known that if such activity does occur swift action will be taken against the employee. Positive points for LJB is the decision to switch to pre-numbered invoices as well as thinking about buying indelible ink, which will be an excellent investment. The machine will also help them simplify their accounting duties as well as help the company be more organized. By using pre-numbered invoices LJB will be able to prevent a...
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...| 5/29/2013 | | | | | | | | | | | | Westchester CaseAcct 325-| | | | | | | | | | | | | | | | | | | | | | | Westchester Case Acct 325- Westchester Distributing, Inc. is a distributing company that serves multiple breweries. The company was established by Vince Patton in the 1960s, when the Miller Brewing Company offered him distribution rights in Westchester County, California. Vince worked hard during his eight years driving a semi-trailer truck for Miller. Because of his dedication he was guaranteed a $70,000 loan by the brewery and four employees to start up Westchester Distributing in 1962. In 1963 Elizabeth Jones also known as Betty joined Westchester. She shared the same work ethic and devotion to the company, which earned Vince’s trust of every aspect of the business. Vince and Elizabeth were the only two shareholders of the Company. In 1982 the company became the first small distributor to win the Miller Masters national quality award. From there they won six of the seven years that they have entered in the contest, which earned them a Miller Grand Master. Companies that are a Miller Grand Master in the 1980s are able to command a 25-50% premium in selling price over non-Grand Masters Distributor. From 1980-1990, Westchester had grown from 250,000 cases per year to 800,000 cases per year. In the beginning the Company was earning $5 million in revenues and is now earning $15 million in...
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...risk assessment that identifies various business factors that could cause risk and determine how to manage the risks. Third, manage and maintain control activities that will reduce fraud occurrence by developing policies and procedures aimed to manage the risks. The fourth factor is the information and communication control that ensures all parties have access and knowledge of the appropriate information to manage the risks at all levels of the organization as well as appropriate external third parties. The fifth and final control is monitoring the internal control systems on a regular basis for adequacy. Within these controls are the principles of internals control activities that include the establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verifications, and human resources controls. These principles will be referenced in our review of LJB Company’s controls. Company does have some of the principles in place. The company has recently started using pre-numbered invoices. This is a great documentation procedure. This will ensure accuracy of tracking the order through the accounting department and when the payment is received to know which customer the sale belongs. Documentation procedures should be set up that anything involving an invoice, check, or cash...
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