Collusion as a Threat to Monitoring:

Collusion occurs when two or more individuals work together to circumvent internal controls.

Even with strong controls in place, collusion can undermine monitoring because it allows individuals to bypass controls without detection.

Explanation of Answer Choices:

A. Theft has occurred: Incorrect. While theft is a problem, it is often detected if controls and monitoring are functioning properly.

B. Financial data is inaccurate: Incorrect. Inaccurate financial data can compromise decision-making, but strong monitoring can help detect and correct errors.

C. Performance data is inaccurate: Incorrect. While inaccurate performance data is problematic, it does not directly compromise the monitoring of financial control weaknesses.

D. Collusion is present: Correct. Collusion is the most significant threat because it undermines the effectiveness of internal controls and makes monitoring ineffective.