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CS Professional · Internal and Forensic Audit · Internal Audit: Introduction and Overview

While auditing Ganga Foods Ltd's payroll, the internal auditor finds that the person who approves new employees in the master file also processes monthly salary payments. Which is the most appropriate classification and response?

It is a segregation of duties weakness and should be reported with a recommendation to separate approval from processing. One person controlling both steps could create ghost employees, though no fraud is proven merely by the weakness existing.

  1. AA segregation of duties weakness; report it with a recommendation to separate approval and processingCorrect
  2. BA minor presentation issue; ignore if no loss has occurred
  3. CAn external audit matter only; do not report internally
  4. DA fraud proven; hand over to police immediately

Explanation

Combining master-file approval and payment processing is a classic incompatible-duties weakness that creates fraud opportunity such as ghost employees. The auditor should report it with a recommendation for segregation. It is not proven fraud, and absence of loss does not make the control gap immaterial.

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