During an audit engagement of a large retail store, internal auditors noted significant discrepancies between available inventory and sales and suspect an abuse of cash register refunds and voids…

Question

Options

• AEnsure that returned merchandise is restocked to shelves or sent to the manufacturer by an
• BCall a sample of customers who returned merchandise to test the legitimacy of the returns and
• CRequire that a manager use a reserved register code to approve voids or refunds.
• DAnalyze voids and refunds by employee, credit card number, and amount for unusual numbers,

• A
  9% (6)
• B
  4% (3)
• C
  71% (48)
• D
  16% (11)

Explanation

Option C is correct because requiring manager approval via a reserved register code is a preventative control - it stops unauthorized voids and refunds from occurring in the first place by adding a required authorization step before the transaction completes. This directly addresses the root cause: employees cannot process fraudulent refunds or voids without managerial oversight.

Why the distractors are wrong:

• A is a detective/operational control about merchandise handling, not about preventing fraudulent cash transactions.
• B is a detective control (it finds problems after they occur by sampling customers) rather than preventing abuse upfront.
• D is also detective - analyzing patterns identifies fraud after the fact but does nothing to stop it from happening.

Memory tip: The key word in the question is "preventative" - always ask yourself "does this stop the bad act before it happens, or does it find it afterward?" Manager approval codes act as a gatekeeper (preventative), while reviewing reports and calling customers are after-the-fact investigations (detective). When you see "preventative control," look for an authorization or approval mechanism.

No community discussion yet for this question.