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CS Professional · Internal and Forensic Audit · Fraud Detecting Techniques

During a forensic review at Kaveri Textiles Ltd, the auditor notes that the same employee approves vendor creation, raises purchase orders and releases payments. Which fraud risk factor does this situation chiefly indicate?

The situation indicates inadequate segregation of duties, which creates opportunity for fraud. When one employee can create vendors, raise orders and release payments, no independent check exists, so a fictitious vendor scheme could go undetected. This is an opportunity factor in the fraud triangle, not pressure or rationalisation.

  1. AInadequate segregation of duties creating opportunityCorrect
  2. BPressure arising from aggressive sales targets
  3. CRationalisation by management of small thefts
  4. DExcessive reliance on external auditors

Explanation

The fraud triangle has pressure, opportunity and rationalisation. One person controlling the approval, ordering and payment cycle removes checks and so creates opportunity. The pressure option concerns motive, not control design, so it does not fit the facts.

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