Certified Internal Auditor (CIA) Practice Test

Which of the following is NOT considered a red flag for potential fraud?

1. Management has delegated purchasing authority to subordinates.

2. An individual has the same cash-handling job for an extended time.

3. An individual handling marketable securities is responsible for all aspects of the process.

4. The assignment of responsibility in accounts receivable is unclear.

The correct answer is: Management has delegated purchasing authority to subordinates.

The choice indicating that management has delegated purchasing authority to subordinates is not typically viewed as a red flag for potential fraud. Delegating purchasing authority can be an essential part of an organization's operational efficiency and effective management strategy. When properly executed, such delegation allows for greater flexibility and responsiveness in decision-making, enabling a company to keep pace with market demands and operational needs. While it's crucial to ensure that appropriate controls are in place to prevent any misuse of authority, delegation in itself does not inherently suggest fraud. In best practices, organizations should implement checks and balances and regular oversight to mitigate risks associated with delegated authorities. In contrast, the other options suggest scenarios that could lead to lapses in internal controls or opportunities for fraudulent behavior, making them significant red flags in a fraud risk assessment context.