Which of the following control methods is effective in reducing the risk of purchasing-scheme fraud?
1. Periodically reviewing the vendor list for unusual vendors and addresses.
2. Segregating duties for amount purchasing, receiving, shipping, and accounting.
3. Validating sequential integrity of purchase orders.
4. Verifying the validity of invoices with post office box addresses.
Periodically reviewing the vendor list for unusual vendors and addresses is an effective control method as it helps in identifying and preventing fictitious vendors, which is a common method in purchasing-scheme fraud. Segregating duties for amount purchasing, receiving, shipping, and accounting is also crucial as it ensures that no single individual has control over all aspects of the purchasing process, which reduces the risk of fraud. Verifying the validity of invoices with post office box addresses is important because fraudsters often use P.O. boxes to avoid detection. Therefore, options 1, 2, and 4 together provide a strong control framework to reduce the risk of purchasing-scheme fraud.
can someone explain the answer?
Option 1 is periodic ( especially detective). Option 2 does not cancel the inherent limitations of internal control (collusion, management override, human error of judgment, cost/benefit balance). Options 3 and 4 are close and permanent controls. All the four options are internal controls, but options 3 and 4 are more effective.