Certified Internal Auditor (CIA) Practice Test

Which procedure is likely to be found in a well-functioning control system?

1. All checks are directly mailed to vendors by the CEO.

2. Periodic evaluations of operational efficiency through internal audits.

3. Documentation of all financial transactions approval by department heads.

4. Independent review of the report before final approval.

The correct answer is: Periodic evaluations of operational efficiency through internal audits.

In a well-functioning control system, periodic evaluations of operational efficiency through internal audits are crucial as they ensure ongoing oversight and assessment of the organization’s processes. This procedure allows for the identification of inefficiencies, compliance with policies, and potential risks that could impact the organization’s objectives. By regularly conducting internal audits, management can verify that controls are operating as intended and can take necessary corrective actions where gaps or weaknesses are identified. The other options miss the mark for effective control systems. Directly mailing checks by the CEO may create a bottleneck and lacks delegation, which is essential in a control environment. Documentation of financial transactions is important, but it must involve a broader context of review and approval beyond just departmental heads to ensure independence and objectivity. An independent review of reports is valuable for quality assurance, yet it should typically be coupled with other comprehensive checks and balances in the system for a more cohesive control environment. Thus, periodic internal audits provide a systematic approach to evaluate and enhance control systems effectively.