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This is from the Practice Questions. Can I ask how collusion is a limitation of internal control, is it because this can be done by the employees that are in charge of the authorisations and implementing internal control? As I put monitoring as the answer as I thought this is time consuming and costly.
Also, the True or False question about a good internal control system providing evidence that the control procedures are being achieved, is it false because it is actually the test of controls that prove this not the fact that it is good?
Thanks for all your help with these.
Collusion = two employees getting together to get round a rule. So there could be collusion between a person who places an order and someone who receives the goods, so that goods are diverted to another address (eg an employee’s address).
Your second point is correct. A well-designed internal control system does not provide evidence that the system is being followed. For that you need to test the controls.
I understand what collusion is but I thought internal control would be preventing this from happening? This is why I ask does it mean that it is a limitation because you cannot ensure that the employees will not do what you have described if put in charge?
These questions are helping improve my understanding of these topics, thank you.
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