Certified Internal Auditor (CIA) Practice Test

What should an internal auditor do if they suspect fraud?

1. Determine that a loss has been incurred first.

2. Interview those involved in asset control before proceeding.

3. Identify employees who may be implicated in the fraud.

4. Recommend an investigation if it seems appropriate.

The correct answer is: Recommend an investigation if it seems appropriate.

When an internal auditor suspects fraud, the most prudent course of action is to recommend an investigation if it seems appropriate. This step is essential because an investigation can provide a structured approach to gathering evidence, understanding the extent of the suspected fraud, and ensuring that the organization's response is methodical and compliant with legal and regulatory considerations. Recommending an investigation allows for the necessary expertise to be applied, ensuring that any findings are handled appropriately and that the rights of any involved parties are safeguarded. Additionally, this action helps to maintain objectivity, as the internal auditor can avoid being drawn improperly into the investigation, focusing instead on evaluating internal controls and compliance processes that may have failed. In contrast, determining that a loss has been incurred first may overlook critical evidence that is time-sensitive and could be compromised if not addressed promptly. Interviewing those involved in asset control could lead to biased or unproductive results if not done under the structured framework of a formal investigation. Similarly, identifying employees who may be implicated in the fraud is not the best initial course of action without a proper investigation to establish facts and support any claims made against individuals involved. Therefore, recommending a formal investigation aligns with best practices in the field of internal auditing regarding fraud detection and response.