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

During an internal audit of Kaveri Gold Finance Ltd, which lends against gold ornaments, the auditor finds that the same officer receives the ornaments, appraises purity and sanctions the loan. Which internal control weakness is this, and what is the best recommendation?

This is a lack of segregation of duties. Custody of ornaments, purity appraisal and loan sanction should be performed by different persons with independent verification, because combining them lets one officer overvalue or misappropriate collateral without detection.

  1. ALack of segregation of duties; separate custody, valuation and sanction roles, with independent checkingCorrect
  2. BExcess documentation; reduce the forms used for each loan
  3. CPoor advertising; increase promotion of gold loans
  4. DWeak dividend policy; revise payout ratio

Explanation

One person handling custody, valuation and approval creates opportunity for collusion or misappropriation, such as overvaluing spurious gold. The control fix is segregation of duties with independent verification. Reducing documents would weaken, not strengthen, control.

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