What is the impact of not having segregation of duties on the revenue cycle?

• A. Increases the risk of revenue misappropriation, errors, and fraud; controls include separating cash receipts, recording, and reconciliation.
• B. Increases efficiency
• C. Reduces the need for audits
• D. Improves cash flow

Answer: (A)

Segregation of duties in the revenue cycle means dividing responsibilities so that cash handling, recording of transactions, and reconciliation are performed by different people. When these duties are not separated, opportunities for revenue misappropriation, errors, and fraud increase because one person can both divert cash and conceal the activity in the books, or manipulate records and masking discrepancies during reconciliation. The control idea is to assign cash receipts to one person, recording to another, and reconciliation to a third, so no single individual can both cause and hide problems.

This approach directly addresses the risk framework of the revenue cycle: it reduces the chance that theft or errors go undetected because there are independent checks at different stages. It’s not about efficiency or speed; it’s about preventing wrongdoing and mistakes through built‑in oversight. It also preserves the need for audits and reviews to assess whether the separated duties are functioning, rather than implying those controls aren’t necessary. Segregation of duties does not inherently improve cash flow; its value lies in reducing the opportunities for misappropriation and errors.