Question

Which of the following controls, if properly implemented, is most likely to decrease the likelihood of fraud?

A. Require rotation of duties among the three purchasing agents.
B. Require that the updates to the perpetual inventory record be made by the receiving department.
C. Require that receiving reports be sent directly to accounts payable.
D. Require periodic rotation of purchases among different vendors.

Answer 1

The most effective control to decrease the likelihood of fraud is to require that receiving reports be sent directly to accounts payable.

Step-by-step explanation:

C. Require that receiving reports be sent directly to accounts payable.

This control is most likely to decrease the likelihood of fraud because it reduces the opportunity for collusion or manipulation between different departments. By sending receiving reports directly to accounts payable, it ensures that the department responsible for payments has access to accurate information and can detect any discrepancies or irregularities.

For example, if the receiving department is controlled by the same individuals involved in fraud, they may falsely report receiving goods that were never actually delivered. However, if receiving reports are sent directly to accounts payable, an independent party can compare the reports with purchase orders and invoices to verify the accuracy of the transactions.