A company controller set up a fictitious subsidiary office to which he shipped inventories and then approved the invoice for payment.The inventories were sold and the proceeds deposited to the controller's personal bank account.Which of the following internal controls would be most effective in preventing that situation?
A)Separation of duties
B)Bank reconciliations
C)Conflict of interest policy
D)Limit checks

Question

Quizplus · Accepted Answer

Separation of duties is the most effective internal control to prevent this situation. By having different individuals responsible for the approval of invoices and the handling of cash, it reduces the risk of fraud and increases accountability. A conflict of interest policy may help to prevent the controller from setting up a fictitious subsidiary office, but it would not necessarily prevent him from approving the invoice for payment and depositing the proceeds to his personal bank account. Bank reconciliations and limit checks may detect fraudulent activity after it has occurred, but they do not prevent it from happening in the first place.

A Company Controller Set Up a Fictitious Subsidiary Office to Which