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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

While auditing Kaveri Textiles Ltd, CA Rohan notices that the purchase manager approves vendor invoices, maintains the vendor master file and also releases payments. Several payments go to a vendor whose address matches the manager's relative. Rohan suspects a fraud scheme. Applying the fraud triangle, which element is most directly demonstrated by the weak segregation of duties?

The weak segregation of duties demonstrates opportunity. When one person approves invoices, controls the vendor master and releases payments, no one independently checks the work, so a fictitious or related vendor scheme can run undetected. The facts do not describe the manager's pressure or rationalisation.

  1. AOpportunityCorrect
  2. BPressure
  3. CRationalisation
  4. DMateriality

Explanation

The fraud triangle comprises incentive or pressure, opportunity and rationalisation. Concentration of approval, master-data and payment functions in one person removes preventive control, creating the opportunity. Nothing in the facts reveals the manager's financial pressure or justification, and materiality is not a fraud triangle element.

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