Question

There are three simple procedures that small business owners should do on a timely basis to prevent fraud when they can't afford sufficient employees to guarantee effective segregation of duties. Which of the following is not one among them?a. Pay everything by check so that there is a record.b. Always open the bank statement and reconcile it themselves.c. Allow one key employee to operate the bank account personally.d. Sign every check themselves and not delegate the signing to anyone else.

Answer 1

Answer: C: Allow one key employee to operate the bank account personally

Explanation:

When a small business owner cannot guarantee effective segregation of duties, key things are important to reduce or eliminate risks of fraud.

1. Effective record keeping is important fo every business and hence paying through checks would ensure to create a track record of every payments done by you. Doing this avoids unreasonable expenses as well as cash shortages.

2. Since, you can't afford sufficient employees, it's important that only you sign every check issued out to maintain order and successive track record, this would also greatly avoid falsified inventories

3. To avoid fictitious records or cases where values are overstated to match profits, it's important taht only you open the bank statements and operate bank accounts personally.

There is high risk of fraud mainly when internal controls can be overridden

Answer 2

Answer:

The answer is:

c. Allow one key employee to operate the bank account personally.

Explanation:

The following procedures are to prevent fraud and ensure internal control that small business owners should:

a. Pay everything by check so that there is a record.

b. Always open the bank statement and reconcile it themselves.

d. Sign every check themselves and not delegate the signing to anyone else.

However, the procedure in the answer c is unnecessary because the account management usually doesn't take so much resources for a small business owner.