The top three sales representatives for a company consistently include non-allowable charges on their expense reports. Line management is reluctant to deny reimbursement of the charges for fear of losing the sales representatives. This situation has the greatest negative impact on which of the following internal control components?
The situation described has the greatest negative impact on the control environment component of internal control. The control environment sets the tone for the organization, influencing the control consciousness of its people. It includes the integrity, ethical values, and competence of the entity’s people; management's philosophy and operating style; and the way management assigns authority and responsibility, and organizes and develops its people. In this case, the reluctance to deny reimbursement for non-allowable charges due to fear of losing top sales representatives indicates a weak control environment where ethical standards and integrity are being compromised.
Management is by passing the controls by allowing the reimbursement to sale representative. that is why answer is control environment.
Control Environment
Hello I do not understand why answer choice is control environment and not control activities. Thank you
Concealing facts about fraud is violence of ethics of conduct, core values. Ethics is one of the key element of control environment.
The fact that management is aware but does not enforce for fear of losing the salesperson shows that the controls culture is weak in the control environment.
because the topic is related to ethics of the salesmen , any ethics issue is affect the control enviornment