Question

As part of his controls testing over DULL's revenue process, Shawn Hiwa observed that the clerk responsible for issuing customer invoices and statements is also responsible for collecting cash receipts from these customers.

In the above example, segregation of duties is violated because the clerk holds the incompatible duties of:

a. authorization and custody
b. authorization and recording
c. custody and recording
d. segregation of duties is not being violated

Answer 1

Segregation of duties is violated as the clerk is tasked with both custody of cash receipts and recording, which are incompatible duties in the revenue process, leading to potential for fraud or errors.

Step-by-step explanation:

The violation of segregation of duties occurs in the scenario provided because the same clerk is responsible for both issuing customer invoices and statements, and collecting cash receipts. These responsibilities should be separated to prevent possible fraud or errors. The correct answer is that the clerk holds the incompatible duties of custody and recording. In sound internal controls practices, the individual who has custody of assets (in this case, cash receipts) should be different from the one who is responsible for the recording or documentation part (issuing invoices and statements) of the revenue process.