Final answer:
Option A, where a significant portion of management's compensation is tied to reported net profits, might alert the internal auditor to the possibility of fraud, as it creates a direct incentive to manipulate financial results.
Step-by-step explanation:
The item that might alert the internal auditor to the possibility of fraud in the division is A. A significant portion of management's compensation is directly tied to reported net profit of the division. This creates a conflict of interest and may motivate management to manipulate financial results to enhance their compensation.
An increase in sales alone (B) does not necessarily indicate fraud unless it is inconsistent with market or economic conditions. The absence of an external audit (C) may reduce oversight, but it does not inherently indicate fraudulent behavior. Therefore, while all options could be relevant in a broader assessment of fraud risk, Option A is a direct red flag for potential fraudulent activity.