CFE Question of the Day: Segregation of Duties

Quiz Yazan Ibrahim
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CFE exam practice question — CFE Question of the Day: Segregation of Duties

CFE exam practice question: daily practice for the Certified Fraud Examiner (CFE) exam — domain: Fraud Prevention and Deterrence.

Question

A mid-sized company discovers that the accounts payable clerk both approves vendor invoices for payment and performs the monthly bank reconciliations. Which control is most effective to reduce the risk of misappropriation of funds in this situation?

  • A. Require that approval of vendor payments and completion of bank reconciliations be performed by different employees
  • B. Implement mandatory vacations and periodic job rotations for employees handling payments and reconciliations
  • C. Engage an external auditor to perform periodic vendor audits and sampling of payments
  • D. Require monthly managerial review and formal sign-off of vendor payments and bank reconciliations
Show the answer and explanation

Correct answer: A. Require that approval of vendor payments and completion of bank reconciliations be performed by different employees

Separating the duties of approving vendor payments and performing bank reconciliations directly reduces the opportunity for a single employee to both misappropriate funds and conceal the theft—making it the most effective preventive control. Mandatory vacations and job rotations are useful detective and preventative measures over time because they can reveal concealed schemes, but they do not eliminate the immediate control weakness. External audits provide independent detection after transactions occur but are not a primary, day-to-day preventive control. Managerial review adds oversight but may be less effective than actual segregation, especially if reviews are periodic or cursory and do not replicate the reconciliation detail.

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