What is the most important element in a control environment?
a. Management's communication
b. Management's role and example
c. The hiring process
d. The internal audit department
b
FEEDBACK: a. Incorrect. Although management communication is critical, it is not the most important element in the control environment. Management's role and example are the most important elements because employees will follow what management does more than what management communicates.
b. Correct.
c. Incorrect. The hiring process, although critical, cannot eliminate all fraud. Hiring only those with integrity can still lead to fraud if the example and role of management pushes employees into believing that fraud is okay. Also, the hiring process cannot screen out all dishonest employees.
d. Incorrect. Internal auditors only detect about 20% of employee fraud. The internal auditors do add a deterrent effect; however, the internal auditors are not the most critical element in the control environment.
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