Management Override
Definition
The circumvention of established internal controls by members of senior management. A key fraud risk in any organisation because those who set the controls can also bypass them. Findings of management override must be escalated to the audit committee, bypassing the implicated individuals.
- Definition
- Circumvention of internal controls by senior management
- Risk level
- Key fraud risk in any organisation
- Why high risk
- Control-setters can also bypass controls
- Escalation path
- Audit committee, bypassing implicated individuals
Common questions
Why is management override considered harder to prevent through normal controls than employee-level fraud?+
Standard internal controls are designed on the assumption that those enforcing them are not the ones seeking to defeat them. When senior management holds the authority to approve exceptions, override journal entries, or waive procedures, the usual checks and segregation of duties built into the control system lose their effect.
What steps do auditors typically take to guard specifically against management override?+
Auditors commonly test journal entries for unusual patterns, evaluate the business rationale for significant unusual transactions, and review accounting estimates for management bias, as required under standards like ISA 240. These procedures exist precisely because normal reliance on internal controls is not sufficient when management itself is the risk.
Related terms
- Attorney-Client Privilege (Legal Professional Privilege)
- A legal protection that prevents compelled disclosure of confidential communications between a lawyer and their client. In forensic audit engagements structured as...
- Audit Committee
- A sub-committee of the board of directors composed principally of independent non-executive directors, responsible for overseeing financial reporting, internal controls, and the...
- Control Environment
- The first and foundational component of the COSO framework. It encompasses the board's oversight, management's philosophy and operating style, organisational structure, commitment...
- Flash Report (Preliminary Oral Briefing)
- An interim communication to the audit committee or board during an active investigation, before the formal written report is ready. Used when...
- Fraud Diamond
- Wolfe and Hermanson's 2004 extension of the fraud triangle that adds capability as a fourth condition. The model holds that pressure, opportunity,...
- Non-Shareable Financial Problem
- Cressey's original term for the pressure element. The problem need not be objectively severe; what matters is that the perpetrator perceives it...
- Occupational Fraud
- The ACFE defines occupational fraud as the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the...
- Rationalization
- The internal justification that allows a person to commit fraud while maintaining a self-image as an honest individual. Common forms include 'I...
- Whistleblower Channel
- A mechanism for individuals to report suspected misconduct to the audit committee or board directly, bypassing management. Required under SOX in the...
- Work-Product Doctrine
- A rule protecting materials prepared by or for an attorney in anticipation of litigation. It is broader than attorney-client privilege and covers...
Explained in these topics
- Presenting Findings to Management and Audit Committees
- The Fraud Triangle and Cressey's ModelThe capacity of senior management to circumvent controls they themselves designed or approved, a particularly dangerous form of opportunity that audit and dete...