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

Orion Foods has a small finance team. The same employee raises supplier invoices for payment, approves them in the system and releases the bank transfers. The finance director proposes that a second person approve all payments above a threshold and that bank releases need a separate user. Which control principle does the proposal primarily restore?

The proposal restores segregation of duties. Because one employee raises, approves and releases payments, fraud or error could go unnoticed. Requiring a second approver and a separate user to release bank transfers divides incompatible functions, which physical, arithmetical or budget variance controls would not achieve.

  1. ASegregation of duties, separating authorisation, custody and recording or execution functionsCorrect
  2. BPhysical control over assets by restricting access to the cash
  3. CArithmetical and accuracy checks on invoice calculations
  4. DManagement supervision through variance analysis of budgets

Explanation

One person currently performs incidental authorisation, processing and payment, which allows fraud or error to go unchecked. Requiring a second approver and a separate releaser divides these functions. Physical, arithmetical and variance controls do not address the combination of incompatible duties.

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