Question

A significant employee fraud took place shortly after an internal auditing engagement. The internal auditor may not have properly fulfilled the responsibility for the prevention of fraud by failing to note and report that

A. Policies, practices, and procedures to monitor activities and safeguard assets were less extensive in low-risk areas than in high-risk areas.
B. A system of control that depended upon separation of duties could be circumvented by collusion among three employees.
C. There were no written policies describing prohibited activities and the action required whenever violations are discovered.
D. Divisional employees had not been properly trained to distinguish between bona fide signatures and cleverly forged ones on authorization forms.

Answer 1

The internal auditor may have failed to prevent employee fraud by not thoroughly evaluating and reporting on the comprehensiveness of policies and procedures, potential collusion due to a lack of separation of duties, lack of written policies on prohibited activities, or inadequate training in recognizing forgeries.

Step-by-step explanation:

The internal auditor's failure to prevent fraud could strongly relate to a lack of attention to key areas that ensure the safeguarding of assets and the prevention of misconduct within an organization. If the auditor did not note and report that policies, practices, and procedures were less extensive in some areas than others, or failed to identify the possibility of collusion among employees due to a system's reliance on the separation of duties, these oversights could have provided an opportunity for fraud to occur.

Additionally, the absence of written policies detailing prohibited activities and responses to violations, or the lack of proper training to recognize forged signatures, could also indicate the auditor's inadequate fulfillment of responsibilities.