Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which of the following demonstrates inappropriate segregation of duties?

1. An accounting clerk receives payments and records the reduction

2. The purchasing manager approves vendor payments

3. A billing clerk prepares and records invoices

4. The cashier performs the bank reconciliation

The correct answer is: A billing clerk prepares and records invoices

The concept of segregation of duties is fundamental in internal control systems and helps to prevent fraud and errors by ensuring that no single individual has control over all aspects of a financial transaction. It is important to separate responsibilities among different individuals to create checks and balances within the organization. The correct choice illustrates inappropriate segregation of duties by highlighting a scenario where one individual has both the responsibility for preparing and recording invoices. When the same person is allowed to prepare and record invoices, this creates a risk of errors or fraud, as that person has the ability to manipulate the data without oversight or verification. In this situation, the individual could potentially misstate revenue or alter records for personal gain, thereby compromising the integrity of the financial reporting process. In contrast, the other scenarios reflect a more appropriate segregation of duties: - An accounting clerk receiving payments and recording reductions may seem dubious, but typically, there are additional controls in place, such as oversight by a supervisor or a reconciliation process, which may help mitigate risks. - The purchasing manager approving vendor payments is generally acceptable as long as there is a system of checks, such as requiring invoices or purchase orders to be processed by another department or individual. - The cashier performing bank reconciliations indicates a breach of separation since the same individual