Situation A: In evaluating the internal control over cash payments of Yankee Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company’s manufacturing process, approving the invoices for payment, and signing the checks. No supervisor reviews the purchasing agent’s work. The missing internal control characteristic for the Yankee Manufacturing company is separation of duties. There are many things that can happen to this business since there is only one person who is the purchaser of the diamonds, approving the invoices, and signing the checks. Also, there is no supervisor checking over this employee’s work. The problem with having one person doing many jobs within Yankee Manufacturing is that fraud could take place or the diamonds could be stolen. When there is only the one employee who purchases the diamonds, approves invoices for payment, and signs the checks, that same employee could take the diamonds without anyone knowing because no one is checking his work. This employee could have diamonds taken to a certain location and the supervisors may not even know before it is too late. A way to keep theft and fraud from happening is to have three different employees doing the duties that the one employee is doing now. For example, there should be one person who is the sole person for purchasing the diamonds. There should be a second person who is in charge of approving invoices for payments. Lastly, there should also be a separate person from the others who signs the checks. This strategy will help keep Yankee Manufacturing in business and they will have less risk of fraud and theft.
Situation B: Rachel Williams owns an architectural firm. Williams’ staff consists of 19 professional architects, and Williams manages the office. Often, Williams’ work requires her to travel to meet with clients.