An internal auditor assessed the controls within his organization's payroll process and suspects that erroneous payments may have been made to a fraudulent bank account. What is the best course of…

Question

Options

• ASpeak to the payroll manager so he may investigate the auditor's observations.
• BContinue to investigate the payments to confirm the accuracy of the observations, and determine
• CStop the audit and report the findings to senior management immediately.
• DEscalate the concern to the engagement supervisor.

• A
  13% (4)
• B
  3% (1)
• C
  77% (23)
• D
  7% (2)

Explanation

When an auditor suspects fraud - not just a control weakness - the situation exceeds the normal boundaries of an audit engagement and demands immediate escalation to senior management, who have the authority and responsibility to investigate, involve legal/HR, and protect the organization. Option C is correct because fraud allegations require urgent, high-level action to preserve evidence, prevent further loss, and ensure proper investigation by parties with appropriate authority.

Why the distractors fail:

• A is dangerous - the payroll manager may be the perpetrator or complicit; alerting them tips off the fraudster and risks evidence destruction.
• B is tempting but wrong - an internal auditor lacks the authority and forensic expertise to conduct a fraud investigation, and continuing alone could compromise the integrity of any future legal case.
• D is insufficient - escalating only to the engagement supervisor keeps the finding too low in the chain; fraud requires senior management involvement immediately, not just the next rung up.

Memory tip: Think "Fraud = Fire alarm, not a bug report." You don't hand a fire to your team lead and say "look into this" - you pull the alarm and get everyone with authority involved right away. When you see suspected fraud on an exam, the answer almost always involves bypassing lower levels and going straight to the top.

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