Centralized authority refers to decision-making being concentrated at the top levels of an organization, ensuring uniform policies and procedures across departments.

Let's analyze each option:

A. Fraud committed through collusion is more likely when authority is centralized.

Incorrect. Centralized authority reduces the chances of fraud by enforcing strict oversight and controls. Decentralized structures may create more opportunities for fraud due to inconsistent policies.

B. Centralized managerial authority typically enhances certainty and consistency within an organization. ✅ (Correct Answer)

Correct. Centralized authority ensures consistent decision-making, standardized processes, and clear policies, reducing uncertainty.

For example, in a multinational company, a centralized governance structure ensures compliance with financial reporting standards across all subsidiaries.

C. When authority is centralized, the alignment of activities to achieve business goals typically is decreased.

Incorrect. Centralized authority actually helps in aligning business activities toward strategic goals by ensuring uniform direction and coordination.

D. Using separation of duties to mitigate collusion is reduced only when authority is centralized.

Incorrect. Separation of duties (SoD) is a key internal control mechanism that exists regardless of centralization. Organizations implement SoD through policies, not just governance structures.

IIA Standard 2110 – Governance – Emphasizes the importance of clear governance structures in organizations.

COSO Internal Control – Integrated Framework – Discusses centralization and its impact on risk management and control effectiveness.

IIA Global Technology Audit Guide (GTAG) – Enterprise Risk Management (ERM) – Highlights the role of centralized authority in aligning corporate strategies.

ISO 37000:2021 – Governance of Organizations – Outlines how centralized governance improves organizational consistency and decision-making.

IIA References: