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AGA CGFM Exam - Topic 1 Question 74 Discussion
Topic #: 1
Management segregates duties among staff in order to reduce the risk of fraud
* Segregation of Duties and the Fraud Triangle:
The Fraud Triangle identifies three conditions that contribute to fraud: pressure, opportunity, and rationalization.
Segregating duties (e.g., separating authorization, recordkeeping, and asset custody) is specifically designed to reduce opportunity, which is the chance for an employee to commit fraud without detection.
* Why Opportunity Is Key:
If one person has too much control over a process, they may exploit it for personal gain. Segregating duties creates checks and balances, making it harder for fraudulent activities to go unnoticed.
* Why Other Options Are Incorrect:
A . Pressure: Pressure refers to personal or financial stresses that drive someone to commit fraud, but segregation of duties does not address this directly.
C . Rationalization: Rationalization involves justifying fraudulent behavior, which segregation does not prevent.
D . Detection: While segregation can aid in fraud detection, its primary role is to reduce opportunities for fraud.
* Reference and Documents:
GAO Standards for Internal Control (Green Book): Emphasizes segregation of duties as a control to mitigate opportunities for fraud.
COSO Internal Control Framework: Identifies segregation of duties as a key tool to reduce fraud risk.
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