Identify three key internal controls that help prevent fraud in a typical accounting system.

• A. Unauthorized access to the system, manual data entry, and lack of backups.
• B. Segregation of duties, authorization and approval controls, and independent reconciliation or audit trails.
• C. Single-user access to all systems, automatic approvals, and no audits.
• D. Frequent changes of accounting policies, no reviews, and decentralized cash handling.

Answer: (B)

Effective fraud prevention in an accounting system comes from strong control activities that limit opportunities and provide independent verification. The best trio is segregation of duties, authorization and approval controls, and independent reconciliation or audit trails.

Segregation of duties means dividing key tasks so no one person controls all parts of a transaction from start to finish. For example, the person who records transactions should not be the same person who handles cash or approves payments. This creates checks and balances that reduce opportunities for theft or errors.

Authorization and approval controls require that transactions be reviewed and approved by someone with the appropriate authority before they’re processed. This ensures only legitimate, policy-compliant activities proceed and creates accountability for those authorizing actions.

Independent reconciliation or audit trails provide ongoing verification and evidence that transactions are accurate and complete. Having someone independent compare records to source documents and maintain clear, traceable trails helps detect irregularities and rectify them quickly.

The other options describe weak or non-existent controls. They either introduce vulnerabilities (unrestricted access, no backups) or remove essential checks (single-user access, automatic approvals, no audits, or policy changes without reviews), which could facilitate fraud rather than prevent it.