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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

At Alder Pharma, one finance officer raises purchase orders, receives goods into the system, approves supplier invoices and releases payments. The finance director says this is acceptable because every payment is reviewed by her in the monthly management accounts. Which assessment is most appropriate?

The arrangement is inadequate. One officer controls ordering, receipt, invoice approval and payment, so there is no segregation of duties and fraud or error could be concealed. A summary-level monthly review is only a detective control and does not adequately compensate.

  1. AAdequate, because the monthly review is a detective control that fully compensates for the lack of separation
  2. BAdequate, because a single trusted officer reduces communication errors
  3. CInadequate, because the incompatible duties are not segregated and a monthly after-the-event review does not prevent fraud or error from occurringCorrect
  4. DInadequate, mainly because there is no internal audit department

Explanation

Authorisation, custody and recording of purchasing and payment should be separated so that one person cannot commit and conceal fraud. A monthly review at summary level is a detective control and is unlikely to reveal individual fraudulent payments, so it is a weak compensating control. The lack of an internal audit function is a separate matter and not the core weakness.

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