Page 244 - COSO Guidance Book

Unfortunately, the cash donations collected by volunteers were much lower than historical
experience, which served as the basis for the budgeted amount of cash donations. It was believed
that controls over the cash donations against theft were adequate. Therefore, management
hypothesized that, due to the recession, the public was unable to be as generous as in the past.
However, a young volunteer provided an additional reason for cash donations to be lower than
expected. The volunteer noted that approximately 20%–25% of the public no longer carried cash
because of the increased popularity of debit or credit cards to make purchases. Management
decided to continue with the volunteer collection of donations during holidays. However, in addition to
being provided with locked buckets to accept cash donations, volunteers were also provided with a
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Square that could be attached to a smartphone to enable debit or credit card donations.
 Point of focus — Addresses segregation of duties

Management segregates incompatible duties and, where such segregation is not practical, selects
and develops alternative control activities.

The framework notes that when selecting and developing control activities, management should
consider whether duties are segregated to reduce the risk of error or inappropriate or fraudulent
actions. Such consideration should include the legal environment, regulatory requirements, and
stakeholder expectations. This segregation of duties generally involves separating the responsibility
for recording, authorizing and approving transactions, and handling the related asset.

The Foreign Corrupt Practices Act of 1977, passed by Congress, notes that the following functions
should be separated to achieve adequate segregation of duties:

– Transactions are executed in accordance with management’s general or specific authorization
(authorization function).
– Transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles or any other criteria applicable to such
statements, and to maintain accountability for assets (bookkeeping function).
– Access to assets is permitted only in accordance with management’s general or specific
authorization (access to assets function).
– The recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences (independent
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reconciliation function).
Historically, the descriptions of the different duties that should be separated have been classified into
bookkeeping, access to assets, authorization of transaction, and independent reconciliation
functions.
The framework states that segregation of duties may not be practical, cost effective, or feasible. For
instance, small entities may lack sufficient resources to achieve ideal segregation of duties, and the
cost of hiring additional staff may be prohibitive. In these situations, management institutes
alternative control activities.

3
A Square is a device that attaches to a smartphone to enable the swiping of debit or credit cards for subsequent
processing.
4
https://www.sec.gov/spotlight/fcpa/fcpa-recordkeeping.pdf

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