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

Sahayog Seva Trust, a charitable trust in Pune, receives donations earmarked for a rural health project. The internal auditor reviewing the trust's controls finds that a part of the earmarked fund was spent on general administration. Which audit concern does this primarily raise?

The main concern is misapplication of restricted funds. Donations earmarked for a specific project must be spent for that purpose, so diverting them to general administration breaches donor conditions and the trust's fiduciary duty, and the internal auditor should report it.

  1. AMisapplication of restricted funds contrary to donor purposeCorrect
  2. BOverstatement of closing inventory
  3. CIncorrect depreciation method on fixed assets
  4. DDelay in filing the annual return of the auditor

Explanation

Earmarked donations are restricted funds that must be used for the stated purpose. Using them for general administration is a misapplication and a compliance and fiduciary concern. The other options relate to unrelated areas and are not suggested by the facts.

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