Question

When segregation of duties cannot be effectively implemented because the organization is too small, we may rely on a more intensive implementation of other control plans such as personnel control plans. This is called:

1) collusion controls
2) compensatory controls
3) authorizing controls
4) inventory controls

Answer 1

Compensatory controls are implemented when segregation of duties cannot be effectively carried out within a small organization, using intensified personnel control plans to mitigate risks and ensure compliance.

Step-by-step explanation:

When an organization is too small to effectively implement segregation of duties, intensified implementation of other control plans is necessary, such as personnel control plans. This alternative approach is known as compensatory controls. Compensatory controls are internal control mechanisms that are designed to compensate for the inability to segregate duties within a small organization. They help ensure that no single individual has control over all phases of a significant transaction, thereby reducing the risk of fraud and errors.

Solutions to coordination problems related to enforcement against collusion, are essentially about ensuring compliance and preventing collective action problems where personal relationships and monitoring play crucial roles. Implementing strong personnel controls can help offset the weaknesses left by the lack of segregation of duties, through an intensification of the oversight and disciplinary mechanisms within an organization's structure.