The most significant risk is the combination of custody of assets (cash) with record-keeping authority. This lack of segregation of duties creates an opportunity for fraud where the clerk could steal cash and alter the records to hide the discrepancy, making detection difficult. While the other options are control concerns, they represent operational or clerical errors, not the high fraud risk inherent in this duty combination.

Policies often include exceptions for sole-source or single-source procurements when justified. The auditor’s first step should be to determine if proper procedures were followed for the exception, such as a written, approved justification. If such documentation exists and is sound, the procurement may be compliant. Jumping to a finding (A) or investigating the market (B) is premature before checking internal documentation.

A single audit, previously known as an OMB Circular A-133 audit, is specifically designed for entities expending federal funds. Its primary purpose is to provide a coordinated, efficient audit that meets the requirements for all federal awards, examining both financial statements and major programs for compliance with federal statutes and regulations.

A surprise payroll distribution is a classic and effective detective control for fictitious employees. If a paycheck is created for a non-existent person, it will remain unclaimed, immediately revealing the anomaly. Direct deposit (A) is a preventive control but doesn’t detect fakes already in the system. Supervisor approval (B) is preventive but can be circumvented. Hand delivery by supervisors (C) is less reliable than a controlled, surprise event where identification can be verified.

Failure to follow the specific administrative procedures mandated by a grant agreement, such as obtaining prior approval for certain costs, constitutes noncompliance with grant provisions. Even if the cost itself was allowable, the process violation is a compliance issue. It may also point to a control deficiency, but its primary classification in the grant audit context is noncompliance.

Infrequent physical counts and the routine write-off of discrepancies without investigation is a critical control weakness. It creates an environment where inventory shrinkage due to theft, loss, or misuse can occur continuously without timely detection or accountability. The risk is the concealment of operational problems, not necessarily a guaranteed material misstatement (A) every period.

In audit planning, the objective states the purpose or goal of a specific audit area (e.g., ‘to determine if disbursements are properly authorized’). The audit procedure is the specific step or test performed to achieve that objective (e.g., ‘select a sample of disbursements and examine supporting documentation for approval signatures’). Objectives drive the procedures.

Economy and efficiency audits focus on the resources used (inputs) and the processes to produce outputs. ‘Average cost per successful trainee’ directly measures the efficiency of converting financial resources (cost) into a key output (successful completer). Outcome measures like job placement (C) or satisfaction (A) relate to effectiveness. Diversity (D) relates to equity or compliance.

The IIA’s Code of Ethics principle of objectivity requires auditors to avoid conflicts of interest. The primary responsibility when a potential impairment is identified is to disclose it to the appropriate party within the audit organization (e.g., supervisor, CAE). They will then evaluate the situation and determine if safeguards are sufficient or if the auditor should be reassigned. The auditor should not make this determination unilaterally.

The most significant risk is the combination of custody of assets (cash) with record-keeping authority. This lack of segregation of duties creates an opportunity for fraud where the clerk could steal cash and alter the records to hide the discrepancy, making detection difficult. While the other options are control concerns, they represent operational or clerical errors, not the high fraud risk inherent in this duty combination.0