Audit Areas

Question 1

To avoid potential errors and fraud a well-designed internal control in the A/P area should include a separation of which of the following functions?
(A) Cash disbursements and invoice verification
(B) Invoice verification and merchandise ordering
(C) Physical handling of merchandise received and preparation of receiving reports
(D) Check signing and cancellation of payment documentation

Answer 1

This answer is correct because the requirements concern internal control in the accounts payable area and separation of cash disbursements and invoice verification is an effective control. The accounts payable function normally includes invoice verification. The important separation should be between authorization of payment and actual cash disbursements. Thus the accounts payable area (including invoice verification) should be separated from cash custodianship and disbursement.