Final answer:
The correct answer is that an internal control system can be rendered ineffective by employee collusion. Despite the effort to establish comprehensive internal controls, no system can offer absolute assurance or be completely infallible, as personnel cooperation to evade these controls can compromise their effectiveness.
Step-by-step explanation:
The question asks about the characteristics of a system of internal control within an organization. An internal control system is designed to regulate and oversee the operations of an organization to ensure integrity, accuracy, and compliance with regulations. However, such systems are not perfect. The correct answer to the multiple-choice question is B) can be rendered ineffective by employee collusion. Collusion between employees can undermine the effectiveness of the internal controls because it involves the cooperative effort of two or more individuals to bypass the controls that are in place. This highlights one of the potential weaknesses in any system of internal control, as it relies on the individual adherence to policies and procedures, which can be compromised through collaboration among employees.
Despite the considerable efforts and resources that go into establishing strong internal controls, they cannot offer absolute assurance (option D), they are not infallible (option A), and the statement that costs invariably exceed benefits (option C) is overly pessimistic as the benefits of preventing fraud and maintaining an organization's integrity can far outweigh the costs of implementing such systems.