Question

The inventory environment should prevent/detect fraud by:

1) Implementing strict access controls
2) Regularly conducting audits
3) Using surveillance cameras
4) All of the above

Answer 1

To prevent or detect fraud in an inventory environment, the best approach involves implementing strict access controls, regularly conducting audits, and using surveillance cameras as part of broader security measures.

These methods are similar to how insurance companies reduce moral hazards by rewarding businesses that adopt robust security and safety systems.

Step-by-step explanation:

The inventory environment should prevent/detect fraud by implementing a combination of measures. The ideal approach to minimize the risk of inventory fraud involves:

1. Implementing strict access controls to restrict entry to inventory to authorized personnel.
2. Regularly conducting audits to verify the accuracy of inventory records and identify any discrepancies.
3. Using surveillance cameras to monitor inventory areas and deter theft by providing a record of activity.

These strategies also parallel some methods used by insurance companies to reduce moral hazard, such as offering lower rates to businesses that install a minimum level of security and fire sprinkler systems, as well as ensuring these systems are inspected annually.

By applying stringent and multi-layered security measures, businesses can deter fraudulent activities and minimize losses due to theft.