Senior management has the primary responsibility for resolving any fraud incidents found as a result of the investigation in the treasury department. While the internal audit activity may identify and report on fraud, and forensic accountants may assist in investigating it, the responsibility for addressing and resolving incidents of fraud, including implementing corrective actions and holding parties accountable, rests with senior management.

The IIA’s guidance on the roles and responsibilities in fraud investigations, which places ultimate responsibility for management of fraud risks with senior management.

To improve the approach to reporting the results of the QAIP, the results must also be shared with the external auditors. This sharing of information helps external auditors determine the extent to which they can rely on the work of the internal audit activity. This not only enhances coordination between internal and external audit functions but also improves the overall audit quality by enabling external auditors to better understand the internal audit environment and its effectiveness.

Institute of Internal Auditors (IIA) - International Professional Practices Framework (IPPF)

According to the IIA guidance on using the maturity model for assessing an organization ' s risk management program, a key activity to examine is " Monitor and Review. " This element evaluates how well the organization continues to monitor its risk environment and reviews the effectiveness of risk management strategies over time. It is crucial for ensuring that risk management adapts to changes and continues to align with organizational objectives.

Institute of Internal Auditors (IIA) - Guidance on Risk Management Maturity Models

The independence of the internal audit activity can be threatened if the annual budget for the internal audit activity is approved by the chief financial officer (Option B). This situation creates a potential conflict of interest because the CFO has a significant influence over the internal audit activity ' s resources, which may impact its ability to operate independently and objectively. According to the IIA Standards, Standard 1110: Organizational Independence, the internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results. Functional reporting to the board and administrative reporting to the CEO (Option A) supports independence, while outsourcing and providing consulting services (Options C and D) do not inherently threaten independence as long as proper safeguards are in place.

IIA Standards, Standard 1110: Organizational Independence

IIA Practice Guide: Independence and Objectivity

According to fraud theory, specifically the Fraud Triangle, the root causes of fraud are typically identified as opportunity, rationalization, and perceived need (or pressure). Among the options given, " Opportunity and perceived need " most closely align with two of these three key elements. Opportunity provides the means to commit fraud, while perceived need motivates the individual to justify fraudulent actions.

Association of Certified Fraud Examiners (ACFE) - Fraud Triangle Theory

ISO 31000 outlines risk management principles and guidelines, including the consideration of external context in the risk management process. The external context refers to the environment in which the organization operates. This includes, but is not limited to, cultural, social, political, legal, regulatory, financial, technological, economic, and competitive environments, both international and national. Therefore, option C, " The regulatory and competitive environment, " is part of the external context for risk management according to ISO 31000.

ISO 31000:2018, Risk management - Guidelines

According to IIA guidance, the standard risk treatments outlined in the process element approach of the framework for risk management include the following steps:

Risk Identification: Identifying potential risks that could affect the achievement of objectives.

Risk Assessment: Evaluating the identified risks in terms of their likelihood and impact.

Application of Controls: Implementing measures to mitigate or manage the identified risks.

Risk Acceptance: Deciding to accept the risk when it falls within the organization ' s risk appetite or tolerance levels.

These steps are part of a structured approach to managing risks, ensuring that risks are systematically identified, assessed, and managed through appropriate controls and that acceptance of residual risks is aligned with the organization ' s strategic objectives and risk appetite.

IIA Practice Guide: Assessing the Adequacy of Risk Management Using ISO 31000

COSO Enterprise Risk Management Framework

The chief audit executive (CAE) is responsible for assuring that all required components are included in the internal audit charter. The CAE must ensure that the charter clearly defines the purpose, authority, and responsibility of the internal audit activity, and that it aligns with the standards set by the Institute of Internal Auditors (IIA). The CAE is also responsible for presenting the charter to senior management and the board for approval.

The IIA Standards: Standard 1000 – Purpose, Authority, and Responsibility: " The chief audit executive must periodically review the internal audit charter and present it to senior management and the board for approval. "

IIA Practice Guide: " Internal Audit Charter: Understanding the Components " : Emphasizes the CAE’s responsibility in developing and maintaining the charter.

Residual risk is the remaining risk after management has implemented risk responses. The auditor is assessing what could still go wrong despite the effectiveness of the risk management technique in place, which is evaluating the remaining exposure to risk. References:

IIA Standard 2120: Risk Management.

COSO Enterprise Risk Management Framework.

According to the IIA ' s International Standards for the Professional Practice of Internal Auditing (Standards), when internal audit staff lacks the required knowledge or expertise to perform an engagement, the chief audit executive (CAE) should consider obtaining additional resources with the necessary expertise. This approach ensures that the assurance engagement can be conducted with the requisite level of competence and fulfills the standards ' mandate for proficiency and due professional care (Standard 1210: Proficiency).

IIA Standard 1210: Proficiency.

Demonstrating proficiency as an internal auditor is best reflected through continuous professional development. This involves adhering to The IIA’s requirement for ongoing education to maintain proficiency and relevancy in the field of internal auditing. Continuous professional development ensures that auditors are up-to-date with the evolving audit practices, standards, and relevant regulatory requirements, thus enhancing their capability to perform effectively.

The IIA’s Code of Ethics and Continuing Professional Development standards.

In consulting engagements, according to the IIA ' s Standards, a work program is not required but may be developed. This allows internal auditors flexibility to design an approach that best fits the nature of the consulting engagement.

The IIA ' s International Standards for the Professional Practice of Internal Auditing (Standards), particularly the standards related to consulting activities.

The best way for internal auditors to demonstrate their proficiency to effectively carry out their professional responsibilities is to obtain appropriate professional certifications or other designations. These credentials, such as Certified Internal Auditor (CIA) or Certified Information Systems Auditor (CISA), are recognized indicators of an auditor’s commitment to continuing education, professionalism, and adherence to industry standards.

IIA Standards for the Professional Practice of Internal Auditing and Continuing Professional Education requirements

According to IIA guidance, an internal audit charter would likely include a statement that internal auditors will demonstrate competence, concern, and the dedication expected of a professional. This aligns with the IIA ' s Code of Ethics and Standards, which emphasize the professional demeanor and commitment required from internal auditors.

The Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing and Code of Ethics.

For consulting engagements, the criteria used to evaluate governance, risk management, and controls are determined jointly by internal auditors and the management. This is distinct from assurance engagements, where criteria are set independently by the auditor to assess whether an organization’s components are functioning as intended and to evaluate compliance with policies and procedures. This distinction emphasizes the collaborative nature of consulting engagements in contrast to the independent nature of assurance engagements.

Institute of Internal Auditors (IIA) - International Professional Practices Framework (IPPF)