Generally, if the dollar amount of an embezzlement scheme at a financial institution is small enough such that the targeted entity's financial statements will not be materially affected, the scheme can be most effectively detected through which of the following methods?

• A. Educating employees who handle currency
• B. Conducting a financial statement analysis
• C. Conducting a review of source documents
• D. Reviewing all disbursements below the approval limit

Answer: (C)

When a theft amount is too small to move the financial statements, catching it relies on the evidence trail behind each transaction rather than the numbers reported. Reviewing source documents provides that trail—matching every disbursement to its supporting invoice, purchase order, and receiving receipt. This makes any irregularity visible, such as forged invoices, duplicate payments, altered figures, or payments to non-existent or ghost vendors, even though the overall financial statements look correct.

Preventive education helps reduce fraud risk, but it doesn’t reveal actual misappropriations already occurring. Financial statement analysis depends on detecting material misstatements; if the scheme doesn’t affect the numbers materially, it’s unlikely to raise red flags there. Checking all disbursements under the approval limit is a solid control and can catch many issues, but it’s a broader procedural approach and may miss problems that surface only when you examine the underlying documents and their consistency. The most direct and effective detection for small-scale embezzlement is a thorough review of source documents.