Question

A mechanism by which a company is reimbursed for any loss that occurs when an employee commits fraud is called a:

1) segregation of duties
2) fidelity bond
3) personnel planning control
4) termination control plan

Answer 1

A mechanism by which a company is reimbursed for losses due to employee fraud is called a fidelity bond, an insurance method that provides protection against financial losses. Thus, the option 2 is the correct answer.

Step-by-step explanation:

The mechanism by which a company is reimbursed for any loss that occurs when an employee commits fraud is called a fidelity bond. This is an insurance method of protecting against financial loss, which functions when policyholders make regular payments to an insurance firm, and in turn, the firm compensates the policyholder for financial damages from events covered by the policy. In the context of a business, a fidelity bond is a form of insurance that covers loss of money or property due to employee dishonesty. While mechanisms like segregation of duties help prevent fraud by dividing responsibilities among different people, it's the fidelity bond that provides the financial safeguard. Additionally, insurance mechanisms help address the problem of moral hazard, where individuals may take greater risks because they are protected against losses.