Below are Case-Based Questions (CIA Part 1 style) on Functions of Different Departments in a Manufacturing Organization, focusing on internal audit observations, discrepancies, irregularities, risk owners, documents, and controls.
Case-Based Questions – Manufacturing Departments (CIA Part 1 Style)
Case 1: Unauthorized Purchase
During an internal audit of the procurement process, the auditor observed that several purchases of raw materials were made without an approved Purchase Order (PO). The materials were received and recorded in inventory based only on supplier invoices.
Question
Which control weakness is MOST evident in this situation?
A. Lack of vendor evaluation
B. Absence of purchase authorization control
C. Ineffective production scheduling
D. Poor inventory valuation method
✅ Answer:
Case 2: Inventory Discrepancy
During a warehouse audit, the internal auditor noticed that the physical inventory count of raw materials was significantly lower than the quantities recorded in the inventory system. Investigation revealed that materials were frequently issued to production without a Material Requisition Note (MRN).
Question
Which control should be implemented to reduce this risk?
A. Increase production capacity
B. Require authorized material requisition before issuing materials
C. Reduce supplier lead time
D. Increase marketing budget
✅ Answer:
Case 3: Quality Control Failure
An internal audit review found that defective finished goods were shipped to customers because quality inspection reports were not completed before dispatch.
Question
Who should be the primary risk owner for this issue?
A. Procurement Manager
C. HR Manager
D. Sales Manager
✅ Answer:
Case 4: Segregation of Duties Issue
During an audit of the purchasing cycle, the auditor observed that the same employee creates purchase requisitions, approves purchase orders, and records supplier invoices.
Question
Which internal control principle is being violated?
A. Budgetary control
C. Preventive maintenance
D. Cost allocation
✅ Answer:
Case 5: Production Planning Problem
Internal auditors observed frequent production delays due to shortages of critical raw materials. The procurement department reported that they were not receiving timely production forecasts.
Question
Which department should provide the required information?
A. Human Resources
B. Production Planning Department
C. Finance Department
D. IT Department
✅ Answer:
Case 6: Obsolete Inventory
An internal audit identified large quantities of obsolete raw materials stored in the warehouse. There was no periodic review of slow-moving inventory.
Question
Which control would BEST mitigate this issue?
A. Increase safety stock levels
B. Implement periodic inventory review and aging analysis
C. Increase production capacity
D. Eliminate quality inspection
✅ Answer:
Case 7: Payroll Irregularities
During an HR audit, the auditor discovered that some employees listed in the payroll register did not appear in the attendance records.
Question
This situation MOST likely indicates:
A. Production inefficiency
C. Vendor fraud
D. Inventory theft
✅ Answer:
Case 8: Machine Downtime
The production department reported significant downtime due to machine breakdowns. Internal audit found that preventive maintenance schedules were not followed.
Question
Which department is responsible for managing this risk?
A. Maintenance Department
B. Sales Department
C. HR Department
D. Procurement Department
✅ Answer:
Case 9: Unapproved Vendor
During the audit of procurement records, the internal auditor noticed that purchases were made from vendors not listed in the approved vendor database.
Question
What is the MOST appropriate control to prevent this risk?
A. Increase warehouse space
B. Restrict purchases to approved vendor list
C. Increase advertising budget
D. Reduce production output
✅ Answer:
Case 10: Missing Shipping Documentation
Internal auditors observed that some finished goods shipments to customers lacked delivery challans or dispatch documentation.
Question
Which risk is MOST significant in this situation?
A. Marketing risk
B. Revenue recognition risk and shipment disputes
C. HR compliance risk
D. IT system failure
✅ Answer:
Case 11: IT System Access
During an IT audit, it was discovered that warehouse staff had unrestricted access to modify inventory records in the ERP system.
Question
Which control should be implemented?
A. Remove ERP system
B. Implement role-based access controls
C. Increase warehouse staff
D. Increase production targets
✅ Answer:
Case 12: Sales Order Irregularity
Internal auditors found that some sales orders were processed without customer credit approval.
Question
Which department is responsible for managing this risk?
A. Credit Control / Finance Department
B. Production Department
C. Maintenance Department
D. IT Department
✅ Answer:
✅ These case-based questions are very similar to what appears in the
Certified Internal Auditor (CIA) Part 1 Exam
Topics: Internal Control, Risk Ownership, Governance, Operational Audit
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