Internal control becomes easier to evaluate when you follow a transaction from request to review and ask who could both make an error and conceal it.
Separate incompatible powers
Approval determines whether a transaction may proceed. Asset custody controls the resource. Recording changes the ledger. Reconciliation compares independent evidence with the ledger. Giving one person all four powers leaves no effective independent check.
A purchasing example
Suppose a workshop needs replacement tools. The requester describes the need, a manager approves the order, a receiving employee verifies delivery, and an accounting employee compares the invoice with the order and delivery record. A reviewer then checks the resulting ledger entries.
A fictitious invoice is harder to process unnoticed when payment depends on evidence from people outside the purchasing request. Merely collecting several signatures does little if each signer relies on the same unverified claim.
Small teams need compensating review
Where full separation is impractical, an owner or supervisor can review original documents and account activity independently. The review should be documented and performed promptly enough to resolve discrepancies. Access permissions should support the actual division of work.
Limits remain
Controls reduce risk. They cannot guarantee that collusion or management override will never occur. Reassess responsibilities when staff, systems, or processes change.
Related question
Apply this knowledge
Use the concept guide to understand the reasoning, then return to the complete question and worked answer.
The Principles of Internal Control Include Which Components and Procedures?Sources
These references support the core concepts and interpretation boundaries explained above.