Which is a core element of internal controls?

• A. Background Checks and Screenings
• B. Auditing External Financial Statements
• C. Segregation of Duties
• D. Market Expansion Planning

Answer: (C)

Internal controls rely on distributing tasks so that no single person can initiate, approve, record, and custody a transaction. This separation of duties creates checks and balances that help catch mistakes and deter fraud. The core idea is to assign different responsibilities to different people: one person authorizes a transaction, another records it, and a third handles the asset or performs reconciliations. When duties are clearly divided, errors are more likely to be detected and fraudulent schemes harder to carry out.

For example, the person who approves a payment should not also sign the check or post the entry to the ledger, and bank reconciliations should be done by someone not involved in cash handling. These practices embody effective internal controls.

Background checks and screenings pertain to hiring and personnel management rather than the structural controls over financial processes. Auditing external financial statements provides external assurance and evaluates controls, but it isn’t the internal control mechanism itself. Market expansion planning is strategic planning and does not address internal control over financial activities.