Certified Government Financial Manager (CGFM) Practice Exam

The separation of duties among personnel is crucial for effective inventory management because it helps to minimize the risk of errors and fraud. By dividing responsibilities related to inventory management—such as purchasing, receiving, and recording inventory—organizations can create a system of checks and balances. This means that no single individual has control over all aspects of inventory, which significantly strengthens internal controls.

When duties are separated, it becomes more difficult for any individual to manipulate inventory records for personal gain or to cover up mistakes. For example, if the same person is responsible for both ordering and receiving inventory, they might be able to order excessive inventory for their own use without being detected. With a proper segregation of duties, such risks are greatly reduced, leading to more accurate inventory records and effective management of inventory levels.

Other internal control activities mentioned, while important in their own right, do not specifically address the fundamental aspects of safeguarding inventory and ensuring accurate record-keeping in the way that the separation of duties does.