Finding Text
2024-002 Separation of Duties Criteria: An effective internal control structure is designed so that there is a separation of duties. Ideally, a different individual should:
· Initiate the transaction,
· Approve the transaction,
· Record the transaction,
· Reconcile balances, and
· Retain custody of the asset
An effective internal control structure includes procedures that:
· Protect assets against theft and waste,
· Ensure compliance with the District's policies, procedures and statutory requirements,
· Aid in the evaluation of the performance of personnel to promote efficient operations, and
· Ensure accurate and reliable operating and accounting data.
Condition: The District is unable to assign a different person to each stage of the transaction cycle. Often
times the individual who initiates the transaction (prepares the purchase order), also approves the
transaction (signs off on the voucher), records the transaction (enters it into the general ledger), reconciles
the balance (determines that the good ordered were received) and has custody over the asset (receives
the shipment).
The District has separated duties to the extent possible given their limited resources and lack of personnel.
The District has attempted to address the shortcomings of their internal control structure by involving the
Board of Trustees in the transaction cycle.
Potential Effect of Condition: The possibility exist that errors or irregularities may occur and not be
prevented, detected or corrected on a timely basis.
Recommendation: We recommend that the District enhance the Board of Trustees' effectiveness by
ensuring that:
· Trustees are made aware of the importance of their functions. New Trustees should be briefed on
their role in internal control and the importance of their oversight responsibilities.
· Trustees are provided with training on preventing and detecting abuse and fraud. Self-study
courses are available from a number of companies and can be ordered on-line.
· Trustees are provided published material on fraud. These materials are available from the
American Institute of Certified Public Accountants or companies that offer CPE courses. In
addition, books are available from Amazon and articles are available free of charge on the web.
Auditee Response: The District is aware of the importance of separating duties and strengthening our
internal control procedures. It is our goal to have procedures in place that incorporate a separation of
duties, including approval authority; access and physical controls; independent audits; standardized
procedures; reporting & communication; and timely reconciliations. The District has established
procedures in the area of payroll; accounts payable, including inventory; general ledger accounting; and
reports and communications both internally and externally. In addition to having 35+ years of experience,
the district business manager has prior experience as a bank internal auditor.