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CS Professional · Internal and Forensic Audit · Audit and Investigations

A forensic auditor at Sundaram Steels Ltd finds that many expense claims by a regional head are just below Rs 50,000, the limit above which a second approval is required. Which red flag does this pattern most directly indicate?

The pattern indicates transaction splitting or structuring to avoid the approval threshold. Claims clustered just below Rs 50,000 suggest the official is deliberately staying under the limit that triggers a second approval, which is a recognised fraud red flag signalling circumvented controls.

  1. ATransaction splitting or structuring to avoid an approval thresholdCorrect
  2. BNormal seasonal variation in expenses
  3. CExcessive segregation of duties
  4. DStrong preventive internal controls

Explanation

Clustering of amounts just under an authorisation limit is a classic sign of structuring, where amounts are kept or split below the threshold to bypass a second approval. It does not reflect seasonality, and segregation of duties would work against such avoidance rather than be excessive. It also shows a control being circumvented, not strong controls.

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