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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

While auditing the HR function of Sundaram Engineering Pvt Ltd, the internal auditor finds that the same clerk prepares salary changes, updates the payroll master file and also distributes salary payments in cash. Which control weakness is most clearly indicated?

The weakness is absence of segregation of duties. One clerk initiates salary changes, maintains the payroll master file and handles cash payment, combining authorisation, recording and custody. This creates opportunity for fraud and concealment, so these functions should be assigned to different persons.

  1. AAbsence of segregation of dutiesCorrect
  2. BLack of a budgetary control system
  3. CInadequate insurance coverage of employees
  4. DFailure to follow the accrual concept

Explanation

One person is handling authorisation or initiation, record-keeping and custody (payment) of cash. This combination lets errors or fraud go undetected. The correct control is to separate these functions among different persons; the other options do not describe the facts.

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