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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Aldous Retail has strict rules requiring three-way matching of orders, receipts and invoices, and managers must approve all purchases above a limit. The internal auditor finds that managers, under pressure to meet profit targets, regularly split orders to avoid approval limits. Which conclusion best reflects the weakness in the control system?

The weakness is that action controls are undermined by a poor control environment and conflicting pressure from profit targets. Managers split orders to evade approval limits, so rules alone fail unless culture, incentives and tone at the top support compliance.

  1. AAction controls are adequate, so only the targets need changing
  2. BDetailed action controls alone are undermined by a weak control environment and conflicting results pressuresCorrect
  3. CThe company should abandon results controls entirely and rely on rules
  4. DThe weakness is solely a lack of segregation of duties

Explanation

Rule-based action controls exist but are circumvented because targets create pressure and the tone in the control environment tolerates it. Strengthening the control environment and balancing incentives is needed, not just more rules. Abandoning results controls is unrealistic, and segregation of duties is not the problem described.

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