A decentralized structure distributes decision-making authority across different business units, divisions, or geographical locations. While decentralization provides flexibility and autonomy, the primary risk is inconsistency in decision-making, as different units may develop their own policies, processes, and priorities that are not aligned with the organization's strategic goals.
* (A) Inability to adapt.
* Incorrect. Decentralization typically enhances adaptability, as individual units can quickly respond to local market conditions, customer needs, and emerging risks without waiting for corporate approval.
* (B) Greater costs of control function.
* Partially correct but not the primary risk. While decentralization may increase oversight costs (e.g., more auditors and compliance personnel), the primary issue is lack of uniform decision- making rather than costs alone.
* (C) Inconsistency in decision making. #
* Correct. When decision-making authority is spread across various units, inconsistencies arise in areas such as risk management, compliance, operational procedures, and resource allocation
. This can lead to conflicts, inefficiencies, and misalignment with corporate strategy.
* IIA Standard 2120 - Risk Management emphasizes the need for consistent risk oversight in all business units.
* IIA GTAG "Auditing the Control Environment" warns that inconsistent policies weaken internal controls and governance.
* (D) Lack of resilience.
* Incorrect. A decentralized structure often improves resilience because decision-making is spread out, reducing dependency on a central authority. This allows units to function independently if one area experiences disruption.
* IIA Standard 2120 - Risk Management
* IIA GTAG - "Auditing the Control Environment"
* COSO Framework - Internal Control Principles
Analysis of Answer Choices:IIA References:Thus, the correct answer is C, as decentralization introduces decision-making inconsistencies, affecting governance and strategic alignment.