A. The following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. Because the treasurer is performing two duties that are not compatible, making disbursements by check (a custody function) and reconciling the checking account (a reconciliation function), the treasurer is in a position to make and conceal unauthorized payments.

B. The question does not state that the treasurer has access to the accounting records. Thus there is no basis for saying that the treasurer would be able to make unauthorized adjustments to the cash account.

C. The following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. Having the treasurer both make disbursements and reconcile the checking account is a control weakness, not a control enhancement, because the treasurer is in a position to both make and conceal unauthorized payments.

D. The following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. In the example of the combination of making disbursements by check (a custody function) and reconciling the checking account (a reconciliation function), we have the treasurer performing two duties that are not compatible.