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Questions and Answers
What are the main objectives of organizational controls in an internal control system?
Which of the following does NOT fall under general controls?
What is the purpose of segregation of incompatible functions in general controls?
Which practice is essential for error detection, correction, and resubmission?
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Which of the following is an example of a general control?
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What is the primary purpose of sound personnel practices?
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What is the effect of improper segregation of EDP and user functions?
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Which of the following is NOT a part of sound personnel practices?
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What benefit does the rotation of duties provide?
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Why should IT not typically be allowed to authorize transactions?
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Which control helps ensure reliability in accounting data?
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What is the role of performance evaluation in sound personnel practices?
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Which aspect of sound personnel practices encourages loyalty and dedication among employees?
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How does psychological control influence employee behavior?
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What is the significance of documentation controls in general controls?
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What aspect of sound personnel practices provides control over the quality of work?
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What is the purpose of segregation of duties in organizational controls?
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In the context of effective organizational controls, what is one role of compensatory controls?
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Which function should not be performed simultaneously by the same person to ensure adequate segregation of duties?
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What type of entries are examples of execution in modern systems?
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Which of the following is an example of a segregation of functions within EDP?
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What does the term 'access is normally indirect' refer to in the context of EDP?
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What is typically NOT included in the segregation of functions among users?
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Which of the following is NOT a part of organizational controls?
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Study Notes
Organizational Controls
- This control relates to the segregation of duties to reduce error and fraud.
- The plan of the organization describes the methods and procedures used by the company.
Segregation of EDP and User Functions
- Error detection, correction, and resubmission: System tests performed during systems development eliminate programming errors. When errors occur, they are generally corrected and resubmitted at source.
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Segregation of incompatible functions: This involves separating functions with the potential to conflict, ensuring authorization, execution, and accountability are handled by different parties.
- Authorization: IT personnel are generally not allowed to authorize transactions, though some authorization functions (such as materials reordering or customer order processing) may be included within program instructions.
- Execution: This involves the steps in the transaction processing cycle and changes to master files, often executed automatically through programmed instructions. Examples include systems-generated financial entries or automatic reversing entries.
- Accountability: EDP personnel should not have custody of non-EDP assets, access is normally indirect, for example, a computer program releasing inventory for shipment.
Segregation of Functions within EDP
- This ensures separation of responsibilities within the IT department.
- Systems Development: This involves systems analysis, application programming, and systems programming.
- Operations: This involves running the IT systems and maintaining data.
- Data base administration: This involves managing the company's databases, including an independent librarian function.
Segregation of Functions among Users
- Separates responsibilities among different departments within the company.
- The textbook includes a table detailing how transactions are handled in different business functions: Sales, Credit, Warehouse, Shipping, Billing, and Accounts Receivable.
- Compensatory controls, manual controls used to compensate for internal control weaknesses resulting from non-segregated duties, are employed to minimize risks. Examples include review and approval of purchase orders by the purchasing department and the review of exception lists in credit approval runs.
Sound Personnel Practices
- Internal control over the quality of work is achieved by ensuring competent and honest personnel.
- The company should have policies that encourage compliance.
Hiring and Evaluation of Personnel
- Hiring tests: Includes behavioral and personality tests.
- Background checks: Involve checking character references, recommendations from past employers, and conducting NBI and police clearances.
- Fidelity bonds: Ensure financial protection in case of employee dishonesty.
Personnel Scheduling
- Irregularities might be discovered during an employee's absence.
Rotation of Duties
- Enables employees to master other tasks, improving overall effectiveness.
- When another person performs a task, it can identify opportunities for improvement.
Performance Evaluation
- Identifies strengths and areas for improvement.
- A basis for rewards and remunerations.
Training and Development
- Enhances employee performance and potential for more responsible roles.
- CPE is crucial for professional development.
Career Path
- Formalizes target positions and identifies training needs.
- Encourages loyalty and dedication.
Rewards and Remuneration
- Motivates employees to perform at their best.
Formalization of Personnel Practices
- Conveys the company's sincerity in its commitment to its employees.
Psychological Control
- Employees tend to display positive behavior based on the reward or punishment system.
Standard Operating Procedures (SOPs)
- These are written instructions and guidelines for routine activities.
- They provide consistency and efficiency in operations.
Systems Development Controls
- Aim to ensure that systems under development function as intended and meet the company's business needs.
Documentation Controls
- These controls ensure that documentation about the company's information systems is complete, accurate, and up-to-date.
Hardware Controls
- These controls aim to prevent unauthorized access to hardware and protect against physical damage to hardware.
System Software Controls
- These controls ensure the integrity and security of the company's system software.
Systems Security Controls
- These controls protect the company's data and systems from unauthorized access, use, disclosure, disruption, modification, or destruction.
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Description
Test your knowledge on organizational controls, focusing on the segregation of duties and error detection methods. This quiz explores essential concepts such as authorization, execution, and accountability in transaction processing. Understand how these controls minimize errors and fraud in an organization.
