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

While auditing a municipal corporation's works department, the internal auditor notices that several small payments to one contractor are each just below the limit needing higher-level approval, and total far above it. Which fraud indicator and best response does this represent?

This indicates splitting of work orders to avoid sanction limits. Repeated payments just below the approval threshold that together exceed it are a classic red flag, so the auditor should expand testing of that contractor's payments and report the circumvention to management.

  1. ASplitting of work orders to avoid sanction limits; extend testing to all contractor payments and report to managementCorrect
  2. BNormal bulk discounting; no action needed
  3. CForeign exchange loss; revalue payments
  4. DLate fee on tax payments; compute interest

Explanation

Several payments just under an approval threshold that together exceed it indicate splitting to bypass authority. The auditor should widen sampling to related payments, check approvals and report. Treating it as discounting ignores the red flag.

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