Which of the following would be the most appropriate next step for the auditor?

While conducting an engagement in the procurement department, the internal auditor noticed that the department head’s travel reports showed minor travel expenses, and there were no charges for hotels, meals, or transportation However, the auditor knew that the department head frequently traveled worldwide to meet with suppliers and visit their production sites.

Which of the following would be the most appropriate next step for the auditor?
A . The auditor should make a note of the issue for follow-up when employee travel expenses are audited.
B . The auditor should analyze trends and changes among the organization’s suppliers over the past few years.
C . The auditor should investigate whether there are any special arrangements regarding senior management travel.
D . The auditor should analyze the list of destinations the department head visited to estimate typical costs

View Answer

Answer: C

Explanation:

Identifying the Anomaly: The internal auditor has identified a discrepancy in the travel expenses of the department head, who frequently travels yet reports minimal expenses. This raises a red flag that needs further investigation.

Understanding the Context: It is important to determine if there are legitimate reasons for the discrepancy, such as special arrangements made for senior management travel, which could explain the absence of typical travel expenses like hotels, meals, and transportation.

Appropriate Next Step: Investigating whether there are any special arrangements for senior management travel (Option C) is the most logical next step. This helps in understanding the context and validating whether the discrepancy is justified or indicative of potential issues such as fraud or misreporting.

Reference: Internal auditing standards emphasize the need for auditors to understand the environment and context of the organization’s operations when anomalies are detected. Other Options Considered:

Option A: Making a note for future follow-up is not proactive and delays addressing a potential issue.

Option B: Analyzing supplier trends, while useful, does not directly address the travel expense anomaly.

Option D: Estimating costs based on destinations can provide insights but does not explain potential legitimate arrangements made by the organization.

Conclusion: Investigating special arrangements regarding senior management travel (Option C) is the most appropriate step to understand the discrepancy and ensure there are no irregularities.