Which of the following could increase risks to the organization’s control environment?

Which of the following could increase risks to the organization’s control environment?
A . Strong board of directors oversight.
B . Incentive-based compensation structures.
C . Lower than average employee turnover.
D . Implementation of a fraud hotline.

View Answer

Answer: B

Explanation:

Incentive-based compensation structures can increase risks to the organization’s control environment by potentially motivating undesirable behaviors such as taking undue risks or manipulating results to meet targets that trigger compensation rewards. This can undermine the integrity of controls and reporting within the organization.

Reference: Governance and risk management literature, including studies and guidance on compensation structures and their impact on organizational behavior and risk.