A manufacturing organization specializes in the production of evaporated milk and breakfast cereals.

A manufacturing organization specializes in the production of evaporated milk and breakfast cereals. The manufacturing processes create significant loss in the form of waste and byproducts. The provision for normal production loss is known to senior management, but little action is taken when abnormal production losses occur. The organization sells its production byproducts to fish farmers at a reduced price. The byproducts are a widely recognized and used product in the fish farming industry. The organization has a policy that also allows its employees to purchase the byproducts at a negligible price. Based on the above, which of the following risks should the internal audit function consider when planning an engagement of the production process?