A key concept of internal controls within an organization is segregation of duties. Segregation of duties helps to significantly reduce the risk of error or fraud within your organization. Do you know what steps within your organization that need segregated? Here is a little refresher on some of the control activities that should be segregated when it comes to accounts receivable and sales within your Company.
In regards to shipping product, processing sales orders, invoicing products, processing sales adjustments and product returns, processing sales, and processing cash receipts , one must be sure there is adequate segregation of duties among those who:
• Approve terms of sale
• Process sales orders
• Record sales orders
• Authorize shipments
• Initiate shipping documents
• Invoice customers
• Collect accounts receivable
• Post cash receipts to accounts receivable subledger
• Review accounts receivable aging trial balance
• Authorize write-offs of delinquent accounts
• Independently investigate accounts receivable discrepancies
• Maintain or authorize accounts receivable adjustments
• Edit the accounts receivable master file
• Process customer service calls and complaints
• Investigate discrepancies or issues related to revenue.
• Open the mail or copy checks received
• Maintain access to cash
• Prepare deposits
• Deposit cash receipts
An easy way to check for adequate segregation of duties is to take the above list and place a name next to each process to see where there may be too many duties on one person’s plate. What one must look for is a single person who has the ability to abuse their power within a system or that can make significant errors without it being detected. Additionally, depending on your company’s size, functions and designations may vary. When duties cannot be separated, compensating controls should be in place. These controls should be designed to reduce the risk of an existing or potential control weakness. If you are unsure of a good way to segregate these duties in a smaller organization, you may consider asking your CPA for suggestions.