CS Professional · Internal and Forensic Audit · Internal Audit: Introduction and Overview
Meenakshi Steels Ltd has strong internal checks, yet the internal auditor finds that the plant head and the purchase manager colluded to approve inflated invoices from a related vendor. What does this best illustrate about internal control and internal check?
It illustrates that collusion is an inherent limitation of internal control: even well-designed internal checks can be defeated when two or more people act together. This is why an independent internal audit review, with analytical and investigative procedures, remains necessary to detect such circumvention.
- ACollusion is an inherent limitation that can defeat even well-designed checks, so independent audit review remains necessaryCorrect
- BInternal check is worthless and should be discontinued
- CInternal audit is the same as internal check and should have prevented it
- DThe statutory auditor alone is responsible for preventing such collusion
Explanation
Controls rely on separation of duties, which collusion between two or more people can circumvent. This is a recognised inherent limitation of internal control. It does not make internal check worthless; it shows why independent review by internal audit adds value. Internal audit is not identical to internal check, and responsibility does not rest solely on the statutory auditor.
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