Final answer:
The most reliable audit evidence for segregation of duties is obtained from the auditor's observation of employees performing control activities. Observation provides a direct, factual view of the implementation of controls that other methods like document inspection or inquiries cannot match.
Step-by-step explanation:
The question aims to identify the best method to verify that a company has properly implemented segregation of duties as part of its internal control system. In the context of an audit, segregation of duties is critical to prevent fraud and errors. The most reliable audit evidence for segregation of duties comes from observation by the auditor of the employees performing control activities. While inspection of documents, flowcharts, and inquiries of employees can provide useful information, observation allows the auditor to see the control activities in action and to ensure that personnel are adhering to prescribed roles and responsibilities.
Integrating this approach with knowledge from OSHA inspections, it is evident that observation is a hands-on priority mechanism like the imminent danger inspections. Studies on discrimination further support that experiments, which include direct observation, offer conclusive insights into cause and effect, akin to observing segregation of duties. Therefore, despite potential bureaucratic resistance or the personal cost to employees highlighted by the bureaucracy oversight discussion, hands-on observation remains the most reliable method for auditors to assess the effective implementation of segregation of duties.