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

During a concurrent audit at a branch of Kaveri Bank, the auditor finds that the same officer both sanctions a term loan and authorises its disbursement in the core banking system. Which internal control principle is breached, and what is the most appropriate recommendation?

Segregation of duties is breached. The same officer sanctions and disburses the loan, so no independent check exists. The auditor should recommend separating the two authorities through a maker-checker system in the core banking system, so one person cannot complete the whole transaction alone.

  1. ASegregation of duties; separate the sanctioning and disbursement authorities (maker-checker)Correct
  2. BRotation of staff; transfer the officer every year
  3. CPhysical safeguarding of assets; install a stronger vault
  4. DBudgetary control; set a lower loan budget for the branch

Explanation

Allowing one person to approve and release a loan removes independent checking, so segregation of duties and a maker-checker arrangement is the remedy. Rotation or vault security does not address the conflicting functions held by a single officer.

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