Collusion

Definition

Collusion is a secret agreement between two or more parties to deceive, mislead, or defraud others. It often involves manipulation of financial records and can compromise internal controls within an organization.

5 Must Know Facts For Your Next Test

1. Collusion undermines the effectiveness of internal controls by allowing individuals to bypass established procedures.
2. It is considered a severe form of fraud that can have significant financial and legal consequences for an organization.
3. Collusion is difficult to detect because it involves multiple parties working together covertly.
4. Effective internal controls include segregation of duties, which helps prevent collusion by ensuring that no single individual has control over all aspects of a financial transaction.
5. Auditors must be vigilant for signs of collusion during their examinations, such as unusual patterns in financial transactions or discrepancies in documentation.

Review Questions

• How does collusion affect the effectiveness of internal controls?
• Why is collusion particularly challenging to detect within an organization?
• What are some measures that organizations can implement to prevent collusion?

Related terms

Fraud: Intentional deception made for personal gain or to damage another individual.

Internal Controls: Processes and procedures implemented by an organization to ensure the integrity of financial and accounting information.

Segregation of Duties: An internal control mechanism that divides responsibilities among different individuals to reduce the risk of error or inappropriate actions.