Which of the following controls would be most useful to prevent an employee from using the organization's funds for inappropriate expenditures and falsifying financial records to conceal the fraud?

Question

Options

• ASegregating duties in the payroll processes.
• BConfirming receipt of goods or services.
• CPerforming background checks on newly hired employees.
• DRequiring management approval for expenses.

• A
  7% (1)
• B
  14% (2)
• C
  7% (1)
• D
  71% (10)

Explanation

Requiring management approval for expenses (D) directly addresses both parts of the fraud: it creates a checkpoint that prevents unauthorized spending before funds leave the organization, and because a separate authority reviews and approves, it's far harder for a single employee to both spend inappropriately and hide it in the records.

Why the distractors fall short:

• (A) Segregating payroll duties helps prevent payroll fraud specifically, but doesn't address general expense fraud or concealment in financial records.
• (B) Confirming receipt of goods/services is a detective control that verifies what was received, but doesn't prevent the fraudulent spending or the falsification of records from happening in the first place.
• (C) Background checks reduce the risk of hiring dishonest employees but do nothing to prevent or detect fraud once someone is employed.

Memory tip: Think of option D as the "two-eyes principle" - when a manager must approve before money moves, no single employee controls the full cycle of spending and recording, which is the classic recipe for concealment fraud. If only one person touches both the wallet and the ledger, fraud thrives.

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