CA Inter P5 · Chapter 3 · Question 6 of 13
At Ishaan Logistics Ltd., the stores keeper and the security guard together removed goods from the warehouse and prepared matching false gate passes. The controls were well designed but failed. This is an example of which inherent limitation of internal control?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Collusion among two or more people
Explanation
Internal controls, however well designed, can be circumvented when two or more people collude, because segregation of duties relies on one person checking another. Here the stores keeper and guard acted together, defeating the control. Management override involves management, which is not the case.
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