Question

How can an owner of a small business reduce risk when segregation of duties is not feasible because the cost exceeds the benefits?

a. Hire more employees
b. Use compensating controls
c. Hire auditors
d. The likelihood of fraud in a small business is so low that there is no need for further action.

Answer 1

An owner of a small business can reduce risk when segregation of duties is not feasible by using compensating controls and implementing alternative measures to mitigate risks.

Step-by-step explanation:

If segregation of duties is not feasible for a small business due to cost considerations, the owner can still reduce risk through the use of compensating controls.

Compensating controls are alternative measures that can be implemented to mitigate risks when traditional segregation of duties is not possible.

For example, the owner can implement regular internal audits to ensure proper checks and balances are in place and to detect any potential fraud or errors.

This can help reduce the risk of inappropriate actions going unnoticed. Additionally, the owner can also implement strong control procedures such as reviewing financial transactions, conducting background checks on employees, and implementing clear policies and procedures to minimize the risk of fraud or misconduct.

By implementing compensating controls, the owner can help reduce the risk of internal control weaknesses and mitigate the potential impacts of fraud, without incurring the high costs associated with implementing segregation of duties.