Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 4

Which of the following, if observed, would not indicate the need to extend the search for other indicators of fraud in a purchasing department?

Answer options

• A. The standard of living of one of the purchasing agents has increased.
• B. The internal control structure has significant weaknesses.
• C. The purchasing agents have convinced management to adopt a policy of paying vendors on a more timely basis in order to avoid incurring penalty charges.
• D. The cost of goods procured seems to be excessive in comparison with previous years.

Correct answer: C

Explanation

Option C is correct because adopting a policy to pay vendors promptly is a legitimate business practice aimed at avoiding penalties, and does not inherently suggest fraudulent activity. In contrast, options A, B, and D indicate potential red flags that warrant further investigation into possible fraud due to unusual lifestyle changes, weaknesses in controls, and excessive costs of goods.