An audit identifies discrepancies in purchasing and payments within a specific division of a company.

The situation represents a failure of control activities. Control activities are the policies and procedures that ensure management directives are carried out effectively. In this case, the lack of separation of duties and inadequate oversight allowed the supply manager to perform multiple conflicting roles (placing orders, receiving materials, and paying invoices) without proper checks and balances, leading to discrepancies and potential fraud.

References

Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Framework

Internal Auditing: Assurance & Advisory Services by Urton Anderson, Michael Head, and Chris Bailey