Shilling Company has implemented an inventory management system in which one person places the order for new inventory, a second person checks it against the purchase order when it arrives and a third person records the receipt of physical inventory in the accounting records. The purpose of this system is:
A) to reduce storage costs.
B) to guard against stock-outs.
C) to reduce accounting errors.
D) to guard against internal theft and collusion.

Question

Quizplus · Accepted Answer

The purpose of having different individuals responsible for ordering, receiving, and recording inventory is to implement segregation of duties. This control is designed to reduce the risk of internal theft and collusion by making it more difficult for a single individual to commit and conceal fraudulent activities.

Shilling Company Has Implemented an Inventory Management System in Which