Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

Question

BlackTom AI · Accepted Answer

In this scenario, a single individual (the warehouse custodian) is handling both physical custody of inventory and the accounting records for that inventory. This arrangement raises control concerns that are central to internal control frameworks.
Option 1: 'documentation procedures are violated.' While poor documentation could be a risk in general, the specific issue highlighted here is not primarily about documentation procedures but about separating duties. The mere act of poor documentation does not necessarily stem from one person performing multiple roles.
Option 2: 'independent internal verification is violated.' Independent verification requires someone separate from the custody and recording functions to review the records or assets. Since the same person performs both functions, independent verification is not present in this setup. However, the core problem emphasized by the scenario is the lack of separation of duties, not the verification activity itself.
Option 3: 'segregation of duties is violated.' Correct. Segregation of duties is a fundamental internal control designed to prevent and detect errors and fraud by dividing responsibilities among different people. When one person both custody of inventory and accounting for it, the opportunity to conceal misstatements without detection increases, violating this principle.
Option 4: 'establishment of responsibility is violated.' Establishment of responsibility means assigning accountability to specific individuals for particular tasks. In this case, there may still be clear responsibility for each role, but the problem is the lack of separation between those roles, not that responsibility assignment itself is violated. Therefore this option does not best describe the core issue.
Overall, the key misalignment is the overlapping duties between custody and recording, which directly contravenes the segregation of duties principle rather than the other control concepts listed.

Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

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