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.
