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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

An internal auditor reviewing Sagar Textiles Ltd finds that scrap generated in the weaving unit is recorded only by the unit supervisor, who also authorises its sale to local buyers and collects the cash. Which control weakness is MOST significant?

The most significant weakness is lack of segregation of duties. One supervisor records scrap, authorises its sale and collects cash, so theft or under-reporting could go undetected. Separating recording, authorisation and custody, with gate passes and reconciliations, is the appropriate control; costing or overtime issues are not the core risk.

  1. ALack of segregation of duties over recording, authorisation and custody of scrapCorrect
  2. BAbsence of a standard costing system
  3. CExcessive use of overtime in the unit
  4. DDelay in preparing the annual report

Explanation

One person records, authorises sales and handles cash from scrap, so misappropriation could go undetected. Standard costing, overtime and report timing do not create this fraud opportunity. The remedy is to separate these roles and use gate passes and reconciliations.

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