Question

Which of the following controls is the least effective in preventing a fraud conducted by sending purchase orders to bogus vendors?

A. Require that all purchases be made from an authorized vendor list maintained independently of the individual placing the purchase order.
B. Require that only approved vendors be paid for purchases.
C. Require contracts with all major vendors from whom production components are purchased.
D. Require that total purchases for a month not exceed the total budgeted purchases for that month.

Answer 1

Option D, which requires that monthly purchases do not exceed the budget, is the least effective in preventing fraud conducted by sending purchase orders to bogus vendors because it does not directly address the legitimacy of the vendors involved.

Step-by-step explanation:

The question revolves around the effectiveness of different controls to prevent fraud related to bogus vendors in a purchasing system. The least effective control among those listed specifically designed to prevent fraud by sending purchase orders to bogus vendors is: D. Require that total purchases for a month not exceed the total budgeted purchases for that month. This control focuses on budget adherence rather than on the legitimacy of the vendors and would not be as effective in detecting or preventing the specific fraud of sending purchase orders to fake or unauthorized vendors.

On the other hand, Options A, B, and C are command-and-control mechanisms designed to closely monitor and control which vendors are authorized to do business with the company. These controls would more directly prevent the fraud in question by ensuring that only valid and approved vendors are engaged in transactions.