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CS Professional · Internal and Forensic Audit · Internal Audit Tools and Techniques

An internal auditor at Himalaya Steels Ltd completes a flowchart of the sales-to-collection cycle and notices that the same employee raises invoices, records receipts and also updates the customer master file. The flowchart shows no independent review point. After walkthrough confirms this, what is the most appropriate conclusion and next step?

The auditor should report a segregation-of-duties weakness and recommend separating the incompatible functions. One person handling invoicing, receipts and the master file allows errors or fraud to go undetected, and the flowchart has revealed this gap, so ignoring or altering it would be improper.

  1. AConclude controls are effective because the flowchart is complete
  2. BReport a segregation-of-duties weakness and recommend separating the incompatible functionsCorrect
  3. CDelete the customer master file step from the flowchart
  4. DWait for the statutory auditor to raise the issue

Explanation

Combining invoicing, cash recording and master-file maintenance in one person is incompatible duties and exposes the company to misappropriation and concealment. The flowchart's value lies in exposing this gap, so the auditor should report it and recommend segregation. A complete chart does not mean effective controls, and altering the chart or waiting would be improper.

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