What must management demonstrate regarding segregation of duties?

Management must demonstrate that segregation of duties is a vital component in preventing fraud within an organization. This practice involves dividing responsibilities among different individuals to reduce the risk of error or inappropriate actions. By proving that segregation of duties is effective as a preventive measure, management establishes a system of checks and balances that enhances the integrity of financial and operational processes.

This approach reduces the likelihood of any single individual having sole control over any critical process, such as transaction initiation, approval, and recording. When duties are segregated, the potential for fraud is minimized because it becomes harder for an individual to manipulate processes without detection. Implementing this measure not only protects the organization against internal threats but also builds trust with stakeholders that appropriate controls are in place to safeguard assets and ensure compliance with regulations.

In contrast, the other options downplay the significance of segregation of duties or misinterpret its necessity in organizational structures, which can lead to vulnerabilities and increased risk of fraud or mistakes.