Separation of the check-writing and accounts payable functions is designed to mitigate the threat of:
A. Paying for items not received
B. Duplicate payments
C. Theft of cash
D. Failure to take advantage of discounts for prompt payment
The correct answer and explanation is:
The correct answer is C. Theft of cash.
Separation of duties, particularly between the check-writing and accounts payable functions, is an internal control designed to reduce the risk of fraud or theft. If one person has control over both the authorization of payments and the actual issuance of checks, there is a higher risk that they could misappropriate funds by writing checks to themselves or altering payment details.
By separating these functions, an organization ensures that no single individual has too much control over financial transactions. One person might be responsible for processing and approving invoices, while another person is tasked with writing the checks. This division of responsibilities makes it more difficult for an employee to bypass the controls and steal money without detection.
This internal control also ensures that payments are made correctly and appropriately authorized. It limits the chances of improper payments, such as those for fictitious invoices or personal expenses. Additionally, this segregation helps verify that proper documentation, such as receipts and purchase orders, supports any payment made.
While the separation of these duties is a critical control against theft, it also helps prevent other types of fraud, such as paying for goods or services that were never actually received. However, the primary purpose of separating check-writing and accounts payable is to safeguard against the theft of cash, as it creates an environment where both activities are monitored by different individuals, reducing opportunities for misappropriation.
In summary, the primary reason for separating the check-writing and accounts payable functions is to minimize the risk of cash theft, ensuring greater accountability and oversight in the payment process.