Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 77

A rapidly expanding retail organization continues to be tightly controlled by its original small management team. Which of the following is a potential risk in this vertically centralized organization?

Answer options

• A. Lack of coordination among different business units.
• B. Operational decisions are inconsistent with organizational goals.
• C. Suboptimal decision-making.
• D. Duplication of business activities.

Correct answer: C

Explanation

The correct answer, C, highlights that in a vertically centralized organization, decision-making may become inefficient due to the concentration of power in a small group, leading to a lack of diverse perspectives. Options A, B, and D are possible issues but do not specifically address the inefficiency in decision-making that arises from centralized control.