Question

Findings for Cascade corporation: (Internal Audit)

1.      Employees at the Richmond, VA golf club factory facility were observed in the grinding machine area without protective equipment (protective glasses). One other employee was treated for eye irritations in this area due to a lack of safety glasses. And, two employees were diagnosed with lung disorders from not wearing masks in the buffing room processes which produces large floating debris.

2.      The required background checks for all new employees were not performed by Human Resources. The corporation had two new sales representatives who committed fraud on their expense reports when they were visiting golf courses across the country. Background checks later were found that they had criminal backgrounds. This loss totaled a $9,051. Additionally, ICE raided the manufacturing facility and found 2 other employees who were illegal aliens who used false social security information to be hired. This hit the local news.

3.      Industrial Engineering did not submit timely cost standards for establishing direct labor usage data required for developing budgeted labor costs for the standard cost budgeting system. This caused faulty 2018 standards costing and quantity and variance analyses leading to weaknesses in the budget analyses and underpricing for products sold costing $232,474.

4.      The Human Resources (never one resource) Department in the Peruvian Division has recently hired mostly from the Inca ethnic community, indicating that job openings have not been publicly advertised except near Cusco and Machu Picchu which resulted in the lack of a diverse applicant pool. This was not a fraud, but a lack of strong outreach to all potential recruits.

5.      Nothing has been implemented after a length review of corporate social media policies about 18 months ago. Some employee behavior has been questioned in the press and customers have had negative comments sent to the corporation. Implementation of these policies is usually through employee education including online courses and questions asking testing what was learned.

6.      A private facility was outsourced to handled golf lessons Hangzhou, China but they did not comply with the $700,000 contract. It was found that the contract did not contain a right-to-audit clause included in all company contracts. Such a clause is standard for all construction projects and any outsourced activity. These clauses protect the company and enable tracking of potential cost overruns and subsequent return of payments. This has nothing to do with Sales, or HR.

7.      Some corporation advertisements in the press and on social media drew negative attention. It was found that the usually focus group testing was not performed. These ads which cost $1.3 million had to be pulled.

What is the scope of the audit and what is the primary purpose of the audit?

Answer 1

.

A)Scope of the audit from the above observations are given below

1) Compliance to the safety standards and policies of the corporation

2) Compliance to the recruitment process as per the SOP - Standard operating procedure of the corporation on recruitment process.

3)Material accounting and costing

4) outsourced contracts including the advertisements services

PURPOSE OF THE INTERNAL AUDIT

B) Purpose of the internal audit is to check whether the internal financial controls and all other statutory and internal policies and standardized procedures are in place and being followed and to test the effectiveness of these controls