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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Tamsin Foods has a small internal audit department reporting to the finance director. A fraud of significant size is discovered in the procurement function, and the finance director, who approved the procurement system design, asks the head of internal audit to lead the investigation and keep the findings within finance. Which response best reflects good governance and the likely implications?

The head of internal audit should refuse to confine findings to finance and report to the audit committee, which should oversee the investigation. The finance director approved the failed controls and so has a conflict of interest. Internal audit may assist with investigations, so refusing involvement entirely is wrong.

  1. AAccept, because the finance director is responsible for the control system and should control the investigation
  2. BAccept, but only if external auditors are told after the investigation is complete
  3. CDecline to restrict reporting, and instead report the matter to the audit committee, which should oversee the investigation, given the finance director's potential conflict of interestCorrect
  4. DDecline to be involved at all, because internal audit may never investigate fraud

Explanation

The finance director designed the controls that failed, so there is a conflict of interest and a threat to objectivity. Good governance has the audit committee oversee the investigation, with internal audit having independent access to it. Internal audit can take part in investigations, so a blanket refusal is wrong, and delaying disclosure to others undermines transparency.

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