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

While auditing the claims department of Bharat General Insurance Ltd, the internal auditor notices that one surveyor has been appointed for a large share of motor claims above Rs 5 lakh, and the claims officer who approves these settlements is a relative of the surveyor. Which audit response is most appropriate?

The auditor should treat this as a conflict of interest and fraud risk, expand testing to all claims handled by that surveyor, and report to the audit committee. Relying on the surveyor's independence or just obtaining a new declaration does not address possible collusion in past settlements.

  1. ATreat it as a conflict of interest, extend testing to all claims handled by that surveyor and report to the audit committeeCorrect
  2. BIgnore it because surveyors are independent professionals
  3. CAsk the surveyor to submit a fresh declaration and close the matter
  4. DLimit the review to claims above Rs 10 lakh only

Explanation

The relationship between approver and surveyor is a conflict of interest and a fraud risk indicator. The auditor should widen the sample to all claims of that surveyor, assess possible collusion or inflated assessments, and escalate to the audit committee. A fresh declaration does not address losses already possibly incurred.

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