Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 1

The top three sales representatives for a company consistently include non-allowable charges on their expense reports. Line management is reluctant to deny reimbursement of the charges for fear of losing the sales representatives. This situation has the greatest negative impact on which of the following internal control components?

Answer options

• A. Monitoring.
• B. Control environment.
• C. Information and communication.
• D. Control activities.

Correct answer: B

Explanation

The correct answer is B, Control environment, because a weak control environment can lead to unethical behavior and a lack of accountability among employees. Monitoring may be affected, but it is the overall culture and attitude towards controls that primarily suffers in this scenario, rather than the specific monitoring processes or activities.