Finding Text
2023‐001. Inadequate Segregation of Duties
Condition: The Pierce Pepin Cooperative Services and Affiliates has a limited number of
office personnel and, accordingly, does not have adequate separation of duties. An effective
internal control structure provides an adequate segregation of duties so that no one
individual handles a transaction from its inception to its completion.
Criteria: A fundamental concept in a good system of internal controls is the segregation of
incompatible duties.
Cause: Due to the relatively small size of the Pierce Pepin Cooperative Services and
Affiliates’ staff, the Pierce Pepin Cooperative Services and Affiliates is not able to attain
ideal segregation of duties of separating the assignment of different people to authorize
transactions, record transactions, and maintain custody of assets.
Effect: This control deficiency could result in a misstatement to the consolidated financial
statements that would not be prevented or detected.
Recommendation: Although it may not be economically feasible for the Pierce Pepin
Cooperative Services and Affiliates to attain an ideal segregation of duties environment, the
Pierce Pepin Cooperative Services and Affiliates can periodically observe and evaluate its
current structure so as to make improvements when considered necessary.
Views of Responsible Officials and Planned Corrective Actions: The Pierce Pepin Cooperative
Services and Affiliates has determined the benefit of adequately segregating duties is less
than the cost. Based on the assessment, the Pierce Pepin Cooperative Services and Affiliates
is accepting the risk posed by the deficiency while also evaluating mitigating controls that
will help reduce the risk of material misstatement of the consolidated financial statements.
Management attempts to mitigate the associated risks by doing the following:
1. Identifies areas where the lack of segregation of duties exists and where there are
higher risks of errors or fraud occurring.
2. Implements limited segregation to the extent possible to reduce risks without
impairing efficiency.
3. Uses the knowledge that management and the Board of Directors have of
operations by having them review certain accounting records and reports.
4. Monitors the effectiveness of the above actions and makes changes as considered
appropriate.