IIA-CIA-PART1 · Question #113
An internal auditor notes that inventory counts are conducted on Mondays only and that all documentation is on paper as there are no computers in the underground warehouses. Also she notices that…
The correct answer is B. Spare parts are written off before their actual usage and installation. Option B represents the highest fraud risk because spare parts that are written off before installation exist in an accountability gap - they've been removed from inventory records but haven't yet been consumed, meaning they could be stolen without detection since no one is…
Question
An internal auditor notes that inventory counts are conducted on Mondays only and that all documentation is on paper as there are no computers in the underground warehouses. Also she notices that the person responsible for receiving the goods is the same one who distributes materials and spare parts Finally, she sees that spare parts are written off and taken by the heads of mining units to different underground locations to wait for their turn to be installed. Which of the described findings requires more consideration from a fraud risk perspective?
Options
- AThe job responsibilities of the warehouse employee compromise segregation of duties
- BSpare parts are written off before their actual usage and installation
- CWarehouse management is conducted on paper and requires further investigation
- DThe inventory counts take place on specific days of the week for no apparent reason
How the community answered
(60 responses)- A12% (7)
- B78% (47)
- C3% (2)
- D7% (4)
Explanation
Option B represents the highest fraud risk because spare parts that are written off before installation exist in an accountability gap - they've been removed from inventory records but haven't yet been consumed, meaning they could be stolen without detection since no one is tracking them. A dishonest employee or manager could divert these "written-off" parts for personal use or resale with little risk of being caught.
Option A (segregation of duties) is a genuine control weakness, but it creates opportunity for fraud rather than an active mechanism for concealing asset theft - it's a red flag, not the riskiest finding on its own. Option C (paper-based records) is an operational limitation and increases audit risk, but paper documentation is not inherently fraudulent and the scenario gives no evidence it's being manipulated. Option D (Monday-only counts) is an unusual scheduling choice but could have a legitimate operational explanation (e.g., shift patterns), and alone doesn't represent a specific fraud scheme.
Memory tip: Think of the fraud risk triangle - Opportunity, Pressure, Rationalization. Option B is dangerous because it removes the paper trail at the most vulnerable moment: when assets are uninstalled and portable. Anytime inventory is written off before it disappears into consumption, there's a window for "legitimate-looking" theft.
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