ACCA Applied Knowledge · Business and Technology · Internal controls
Dalton plc has strong written procedures, authorisation limits and segregation of duties. Despite this, two senior employees agree together to approve fictitious supplier invoices. Which inherent limitation of internal control does this scenario best illustrate?
This illustrates collusion. Segregation of duties assumes people act independently, but when two employees agree to approve fictitious invoices together they can bypass the control. It is a deliberate act, so it differs from simple human error or cost limitations.
- ACollusion between employees can circumvent controls that depend on segregation of dutiesCorrect
- BControls are designed only for routine transactions and cannot cover unusual ones
- CControls are costly, so the cost outweighs the benefit
- DHuman error in applying procedures through fatigue or misunderstanding
Explanation
Two people acting together can defeat segregation of duties, which assumes individuals act independently. Cost-benefit and routine-transaction limits are real limitations but are not what the scenario shows. The scenario describes deliberate agreement, not error through fatigue.
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