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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Harlow Freight's warehouse manager raises purchase orders, approves supplier invoices and releases payments to suppliers without any second review. Which control weakness is most directly present, and what is the most appropriate recommendation?

The weakness is a lack of segregation of duties, because one manager orders, approves and pays. The best recommendation is to split these functions between different people so that each step checks another and fraud or error is less likely to go unnoticed.

  1. ALack of segregation of duties; separate the ordering, invoice approval and payment functions between different staffCorrect
  2. BLack of physical controls; install secure storage for blank cheques only
  3. CWeak information systems; upgrade the accounting software to a cloud platform
  4. DInadequate risk appetite; ask the board to accept a higher level of fraud risk

Explanation

One person controls the whole purchase-to-payment cycle, so errors or fraud could occur and go undetected. Dividing incompatible duties between different people is the standard remedy. Physical or software changes would not remove the underlying conflict of duties.

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