Which control is most effective at preventing fraudulent disbursements?

Which control is most effective at preventing fraudulent disbursements?

• A. Segregation of duties
• B. Hiring more temporary staff
• C. Increasing executive compensation
• D. Centralizing procurement

Answer: (A)

Segregation of duties is the most effective way to prevent fraudulent disbursements because it divides the payment process among different people so no single person can initiate, approve, and record a payment or redirect funds to themselves. When separate individuals handle purchasing, receiving, approving invoices, and disbursing funds, opportunities for fraud are blocked at multiple points and discrepancies are more likely to be detected during reconciliations or reviews. This creates a built-in check that reduces the chance of a fraudulent disbursement slipping through. The other options don’t address this fundamental control gap: adding temporary staff may even dilute accountability and training; higher executive pay doesn’t stop improper disbursements and can create perverse incentives; centralizing procurement can help with purchasing controls but doesn’t by itself ensure proper separation of payment authorization and processing.

Segregation of duties is the most effective way to prevent fraudulent disbursements because it divides the payment process among different people so no single person can initiate, approve, and record a payment or redirect funds to themselves. When separate individuals handle purchasing, receiving, approving invoices, and disbursing funds, opportunities for fraud are blocked at multiple points and discrepancies are more likely to be detected during reconciliations or reviews. This creates a built-in check that reduces the chance of a fraudulent disbursement slipping through. The other options don’t address this fundamental control gap: adding temporary staff may even dilute accountability and training; higher executive pay doesn’t stop improper disbursements and can create perverse incentives; centralizing procurement can help with purchasing controls but doesn’t by itself ensure proper separation of payment authorization and processing.