ACCA Applied Knowledge · Business and Technology · Internal controls
During a review, an internal auditor finds that bank reconciliations at Tarn Ltd are prepared by the same employee who records cash receipts and has access to the cash. Which recommendation in the report would best address this control weakness?
The best recommendation is to segregate duties so that a person independent of cash handling and recording prepares or reviews the bank reconciliation. The weakness is that one person can both misappropriate cash and conceal it. More frequent reconciliation by the same person does not remove that conflict.
- ARequire the reconciliation to be prepared more frequently by the same employee
- BSegregate duties so that someone independent of cash handling and recording prepares or reviews the reconciliationCorrect
- CReplace the bank account with petty cash
- DAsk the external auditors to prepare the reconciliation each month
Explanation
The weakness is lack of segregation of duties, which allows errors or fraud to go undetected. Having an independent person prepare or review the reconciliation addresses this. Doing it more often by the same person leaves the conflict in place, and external auditors should not perform management's controls.
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