Certified Internal Auditor (CIA) Practice Test

Which observation reflects a control strength in a local department store's disbursement cycle?

1. Individual department managers use prenumbered forms to order merchandise from vendors.

2. The receiving department is given a copy of the purchase order with a description of goods.

3. The treasurer's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.

4. Individual department managers are responsible for the movement of merchandise from receiving dock to storage.

The correct answer is: The treasurer's office prepares checks for suppliers based on vouchers prepared by the accounts payable department.

The observation that the treasurer's office prepares checks for suppliers based on vouchers prepared by the accounts payable department reflects a strong control in the disbursement cycle. This process establishes a clear separation of duties, which is a fundamental component of internal control systems. By having the checks prepared by the treasurer's office based on the vouchers from accounts payable, it ensures that there is an independent verification of the transactions before disbursement occurs. This approach minimizes the risk of fraudulent activities, such as paying for unauthorized or fictitious goods and services, because it requires that multiple parties (accounts payable and the treasurer) are involved in different aspects of the transaction process. Ensuring that the payment process is handled by someone independent of the purchasing function promotes accountability and accuracy in financial reporting. In contrast, other observations either do not strengthen the control environment similarly or may expose the organization to risks. For instance, having individual department managers order merchandise using prenumbered forms does establish a tracking mechanism but does not provide an independent check on the actual payments made. The receiving department receiving a copy of the purchase order contributes to coordination but does not directly influence the control strength in disbursement processing. Similarly, while individual managers’ responsibility for goods movement is important for logistics