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CS Professional · Internal and Forensic Audit · Internal Audit Tools and Techniques

In a review at Anand Retail Ltd, the internal auditor finds that one employee can create vendors in the master file, approve purchase orders to them and also release their payments. The auditor decides to run a test on all payments to vendors created in the last 60 days. What best describes the underlying control weakness and the appropriate response?

The weakness is lack of segregation of duties, since one employee controls vendor creation, ordering and payment. The sensible response is targeted full-population testing of payments to newly created vendors, because the fraud risk is high and a small sample could miss fictitious vendor payments.

  1. ALack of segregation of duties; use targeted 100% testing of high-risk transactions rather than a small sampleCorrect
  2. BLack of physical safeguards; increase the frequency of stock counts
  3. CInadequate budgetary control; compare actual with budget
  4. DWeak authorisation limits; rely on management representation

Explanation

One person controlling vendor creation, ordering and payment is a segregation of duties failure, creating a fraud opportunity. Because the risk is high, testing all payments to new vendors gives better assurance than a small sample. Stock counts, budget comparison or management representation do not address the weakness.

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