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CS Professional · Internal and Forensic Audit · Special Points relating to Internal Audit in various Entities

An internal auditor at Sundaram Traders, a wholesale trading firm, finds that the same employee approves purchase orders, receives goods at the warehouse and updates the stock ledger. Which is the most appropriate recommendation?

The best recommendation is to segregate ordering, receiving and stock recording among different people. When one person authorises, holds and records goods, errors or theft can be concealed. Segregation creates independent checks. Merely increasing stock counts detects problems later but does not remove the structural control gap.

  1. ASegregate the duties of ordering, receiving and stock recording among different personsCorrect
  2. BIncrease the frequency of physical verification only
  3. CReplace the stock ledger with a bank reconciliation
  4. DReduce the number of suppliers to one

Explanation

Combining authorisation, custody and recording in one person is a classic segregation-of-duties failure and enables fraud with concealment. More frequent counts only detect losses afterwards and do not fix the root cause. The other options are irrelevant to the weakness.

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