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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

A company's finance department allows the same employee to raise purchase orders, approve supplier invoices and release payments. Which internal control principle is being breached?

The principle breached is segregation of duties. One employee controls ordering, invoice approval and payment, so there is no independent check and fraud or error could go unnoticed. Separating these responsibilities between different people is the standard control to reduce that risk.

  1. ASegregation of dutiesCorrect
  2. BPhysical access control
  3. CArithmetic and accuracy checks
  4. DRotation of external auditors

Explanation

Concentrating ordering, invoice approval and payment in one person removes independent checks and creates fraud risk. Splitting these tasks among different people is segregation of duties. Physical controls, arithmetic checks and auditor rotation do not address this specific weakness.

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