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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

During an operational audit of Karst Retail's returns department, an internal auditor notices that a single clerk both authorises refunds and processes them, and that refunds to a few customers are unusually frequent and just below the approval limit. The auditor has no proof of wrongdoing. What is the most appropriate next step for the auditor?

The auditor should report the red flags promptly to senior management or the audit committee so a planned investigation can be considered. Confronting the clerk risks tipping them off and destroying evidence, ignoring it breaches professional alertness, and auditors lack authority to dismiss staff or recover funds themselves.

  1. AConfront the clerk directly and demand an explanation before any report is made
  2. BIgnore the pattern because the audit scope is operational, not fraud-related
  3. CReport the concerns promptly to the appropriate senior management or audit committee so that a properly planned investigation can be consideredCorrect
  4. DExtend the operational audit unilaterally to dismiss the clerk and recover the funds

Explanation

Internal auditors are not primarily responsible for detecting fraud but must be alert to indicators and report them through the proper channel. Confronting the clerk could tip off the suspect and compromise evidence. Ignoring the pattern fails the duty of alertness, and auditors have no authority to dismiss staff.

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