Certified Internal Auditor (CIA) Practice Test

An adequate system of internal controls is most likely to detect a fraud perpetrated by which of the following?

1. A group of employees in collusion.

2. A single employee.

3. A group of managers in collusion.

4. A single manager.

The correct answer is: A single employee.

An adequate system of internal controls is most effective at detecting fraud when it is perpetrated by a single employee rather than a group. This is because internal controls are designed to create checks and balances that can more easily identify irregularities or unauthorized actions by an individual. These controls may include segregation of duties, regular audits, and oversight activities that monitor employee transactions and activities. When one employee is responsible for a task and there are robust controls in place, anomalous behavior or discrepancies can be more readily recognized. Moreover, the controls might flag behaviors such as unusual patterns in financial reporting, access outside of normal workflows, or failures to follow established protocol, making detection more likely. In contrast, fraud perpetrated by a group, whether it involves employees or managers colluding, can be much harder to detect. This is because the participants can work together to circumvent controls or to mask their activities, thereby undermining the effectiveness of established internal controls. The collaborative nature of the fraud could mean that multiple individuals are covering for one another or that they are manipulating systems in ways that a single employee might not be able to do alone. Thus, while an adequate system of internal controls is necessary for any organization, it is particularly focused on exceptional actions by individuals, rendering it