C is corrent because even the best controls may fail if they rely upon human judgment, and that judgment is faulty.
A is incorrect because in most circumstances incompatible duties may be eliminated, and they are therefore not inherent limitations to internal control.
B is incorrect because a company may create an audit committee, thus making lack of an audit committee not an inherent limitation of internal control.
D is incorrect because in most circumstances duties may be segregated, and therefore a lack of segregation of duties does not represent an inherent limitation of internal control.
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