CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions
During an internal audit of the treasury department of Kaveri Textiles Ltd, the auditor finds that the same executive negotiates forex forward contracts with the bank, confirms the deals and also records them in the books. Which control weakness is most directly indicated?
The key weakness is the lack of segregation of duties. Dealing, confirming and recording forex contracts should be done by different people, otherwise unauthorised or wrong deals can be hidden. Separating front, middle and back office functions is a basic treasury control.
- AAbsence of segregation of duties between dealing, confirmation and accountingCorrect
- BExcessive use of hedging instruments
- CLack of a sales credit policy
- DDelay in preparing the annual budget
Explanation
Sound treasury control requires front office (dealing), middle office (risk and confirmation) and back office (settlement and accounting) to be separate. One person performing all three can conceal unauthorised or erroneous deals. The other options do not relate to the facts described.
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