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CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

During an internal audit of Bharat Steels Ltd, the auditor finds that the same employee raises purchase orders, receives goods and approves supplier payments. Which internal control weakness does this most directly indicate, and what is the proper reporting step?

This is a segregation of duties weakness, because one employee controls ordering, receipt and payment. The internal auditor should report it to management and the audit committee with a recommendation to separate these functions, and should not fix the records personally, to preserve independence.

  1. AInadequate segregation of duties; report it to management and the audit committee with a recommendation to separate the functionsCorrect
  2. BInadequate physical safeguarding; report it only to the statutory auditor
  3. CAbsence of budgetary control; ignore it as it is operational
  4. DWeak authorisation limits; correct the records directly

Explanation

One person performing ordering, receiving and paying breaks segregation of duties, creating fraud and error risk. The internal auditor should report the finding with a recommendation to the management and audit committee. The auditor does not correct records, as that would impair independence.

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