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CMA Intermediate · Business Laws and Ethics · Internal Financial Control for Financial Reporting

Meera Pharma Ltd has strong written procedures for approving purchases, but the same employee raises purchase orders, receives goods and authorises payment. Which IFC weakness does this most directly show?

The weakness is lack of segregation of duties. When one employee raises orders, receives goods and authorises payment, no independent check exists, so errors or fraud can go undetected. This undermines the design of internal financial controls even though written approval procedures are present.

  1. ALack of segregation of dutiesCorrect
  2. BExcess documentation
  3. COver-reliance on external audit
  4. DAbsence of a board of directors

Explanation

Assigning ordering, receiving and payment authorisation to one person removes the check one employee provides on another, so errors or fraud may go undetected. This is a failure of segregation of duties. The procedures exist, so documentation is not the problem.

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