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ACCA Applied Knowledge · Business and Technology · Internal controls

In a small retailer, the same employee orders inventory from suppliers, receives the goods into the warehouse and records the receipt in the inventory system. Which of the following is the MOST appropriate control improvement?

The best improvement is to separate ordering, receiving and recording of inventory between different employees. One person handling all stages can conceal errors or theft. Segregation of duties creates independent checks, whereas holiday rules or self-checked counts do not remove the underlying conflict.

  1. ARequire the employee to take annual leave of at least two weeks
  2. BSeparate the ordering, receiving and recording of inventory between different employeesCorrect
  3. CAsk the employee to count inventory more often and report the results to themselves

Explanation

The weakness is that one person controls several stages of the same transaction, so errors or fraud could go undetected. Segregation of duties between ordering, custody and recording addresses this directly. Mandatory leave can help detect problems but does not remove the incompatible duties. Self-reported counts give no independent check.

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