Concept explainers
Which duties should be segregated in the purchasing process? Why? That is, what could go wrong if two or more of those duties are not segregated?
Determine the duties that should be segregated in the purchasing process and also explain the reasons for the segregation. Also, explain the consequences if two or more of those duties are not segregated.
Explanation of Solution
An individual in an organization who has been entrusted with the responsibility of placing orders for purchase of goods is known as purchasing agent. The purchasing agent should neither receive goods nor approve payment. If the purchasing agent is authorized to receive goods or approve payment, the agent would carry out fraudulent activities such as the ordered goods could be shipped to the home or side-business of agent or the agent and suppliers can have collusion among them approving the payment and splitting the excess money.
The person responsible for making payments should not be given the responsibility of signing checks or the custody of goods purchased.
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Chapter 7 Solutions
Financial Accounting (5th Edition) (What's New in Accounting)
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