Question

Question 22 A small business uses segregation of duties for processing checks and cash received at its office. No financial transaction is handled by one person from start to finish. This is an example of a Answer saved Marked out of 1.00 Flag question Select one: O a directive control. O b. detective control. c.preventive control O d mitigating control.

Answer 1

c. Preventive Control

Explanation:

Preventive controls attempt to prevent undesirable events from occurring. They are proactive controls that help to prevent a loss. Segregation of duties is a key concept of internal controls. When a transaction is handled by one person from start to end, there is always a high probability of some error getting undetected or some sort of fraud done by the individual handling the transaction out of personal bias without coming to the notice of the organisation, resulting in failure of internal controls because they lead to high chances of frauds and errors in the organisation.

However, when the concept of segregation of duties is employed, a transaction is to handled by various employees from start to end. In this way, the transaction is rechecked by every employee handling the part of the transaction resulting in very low probability of any error to remain undetected. Moreover, for a fraud to take place, it will require a team effort of all the employees handling the transaction which is quiet difficult. Therefore, the concept of segregation of duties will work as a preventive control and prevent errors and frauds from occurring.