Audit Report Findings

ACC 450/550 SUMMER 2013

AUDIT REPORT PROJECT

Requirements:

Must have following:

Cover sheet with distribution list (list of who receives report - appropriate to findings, must have proper titles and names – line-up both columns – do not center each line)

                                    Al Kaline                    VP Finance

                                    Miguel Cabrera        VP Engineering

                                    Dave Bing                 VP Purchasing

                                    Justin Verlander      VP Human Resource

                                    Gordie Howe             AVP Controller

                                    Dave Dombrowski   VP Investor Relations

                                    Duane Borkowski    External Auditor Partner

                                    D. Robert Okopny    Chief Audit Executive

                                    Your Name                Manager, Internal Audit

Table of Contents – generally don’t use dots, and page numbers must line up

EACH OF THE FOLLOWING HEADINGS WILL BE CENTERED ALL CAPITAL LETTERS

Executive Summary – decide what might be important enough for high level executives regarding your results (this is not just a repeat of the findings).  Some may be important, some not.

Background–Summarize information required by key senior management based on the background data provided – Be sure to evaluate and analyze what is key to the audit report.  Senior company management and the Audit Committee have limited time and would like to focus on the important areas.Use information below and you can make up anything else needed.  Write as someone who is an internal auditor of Acme Corporation, not an external consulting internal auditor.

Audit Scope and Purpose – Needs to be developed based on the audit findings.  Need paragraph or few lines on each.  What is the scope of the audit and what is the primary purpose.  Remember the definition of internal auditing.

Write up of Findings– these are the problems, issues, opportunities or whatever you want to call them

Write up of Recommendations – to fix the problems

Reply – insert a heading for a Reply for each finding, but you do not need to provide any writing as this space would normally be used by the “auditee”.

Summary, must include an overall evaluation of entity (use an appropriate key developed by you) - this is a necessary section and this is not a repeat of the individual findings and an evaluation of those- will be marked down at least 5 percent for no overall evaluation.  Similar to a grade in class, or personnel performance review, but not using the same scale.

Organize each finding (use name for the finding, not the word finding e.g. Missing Cash Deposit), Recommendation, and Reply by Department – you(not me) have to decide which departments match to specific findings:

You must make up (Be creative) what you do not have for the write-ups below.  The information should make some rationale sense.

Findings to write-up - EVERYONE MUST USE THE SAME DATA.  A PRIMARY PART OF YOUR GRADE WILL BE BASED ON HOW THESE FINDINGS ARE DEVELOPED, NOT JUST WHAT WAS GIVEN TO YOU – just repeating gets you about 50 percent.  THIS IS THE MAJOR PART OF THE ASSIGNMENT.

1.         Thirty-twoaccounts payable were paid twice each (duplicate payments) due to lack of documents being cancelled when paid by the Treasurer (total amount $814,002).  This was out of a total of 790 documents and $4.6 million.

2.         Employees at the Baton Rouge, Louisiana plant were observed in a hazardous area without protective footwear and/or safety glasses.  Additionally, one employee lost her sight two years ago because of lax safety standards, one other was treated for eye irritations in this area and one employee lost a toe that may have been protected by required steel-toed shoes and protective eye shields if they had been wearing them.

3.         Travel expenses in the amount of $64,074 were found to be reimbursed without proper supporting documentation which is contrary to policy.  These reimbursements were found in a review of a sample of 25 employees.  This site has 49 regular travelers.  These discrepancies were primarily found in five top executive accounts.

4.         Purchasingdid not submit timely materials price data required for developing direct material costs for standard costs.  This may have caused faulty product costing and pricing standards and variance analyses.  One product was underpriced by 2.5 percent and subsequently the company incurred a loss of $279,400 in six months of 2012.

5.         The Human Resources department in the Michigan Division has recently hired mostly from one ethnic community, indicating that job openings have not been publicly advertised which resulted in the lack of a diverse applicant pool.

6.         Last year’s audit recommendations regarding plant safety standards for machine maintenance and hand protection guards have not been implemented despite previous agreement by the auditee.  (Hint: never write an audit comment against the internal audit function meaning against yourself or to “management” because most companies do not have a management department – use specific department names).

7.         A building construction contract worth $34.4 million was found to be started without a right-to-audit clause included in the contract, which is standard for all construction projects.

Example of one finding (these are headings without content): Use this format – do not right justify anything, do use hanging indents, be consistent

I.  TREASURY (This a dept.)

A.   Unapproved Cash Payments (The name of the findinggiven by you) – this is a heading

Condition

Start your discussion here (under the heading).  The meaning of these headings will be discussed in class.  They are also in the Gleim book and in the ISPPIAs.

Criteria

Cause

Effect

Recommendation 

Management Action (include the timing)

REPEATING ONLY WHAT I GAVE IS NOT GOOD ENOUGH - YOU MUST DEVELOP THE FINDINGS !!!

OAK ENTERPRISES, inc. background Data

• Total employees -- 14,200 (2,100 salaried, 12,100 hourly)
• Total payroll – Salaried -- $214 million, Hourly -- $901 million
• Hourly work force unionized in Brazil, Canada, China, Mexico and U.S.
• Total Benefits – $147 million
• Purchasing Department – 92 employees
• Annual purchases -- $1.7 billion
• Total Revenue – $10.1 billion
• Accounts Payable highly centralized with 42 employees
• Annual project expenses -- $52.1 million
• Headquarters in Michigan with plants located in Brazil, Canada, China, Mexico, and United States.
• Research Centers in U.S. and China
• Plant in China just recently expanded
• Accounts Payable system launched in 2011.
• EPS for 2012 $4.20; a decrease from $4.94 in 2011
• Accounts Receivable totaled $2.2 billion
• New line of credit established with a Global Bank International
• New product line was launched in the first half 2012
• Accounts Receivable call center co-sourced in India
• New general ledger system launched in 2011
• Purchasing system upgraded with the general ledger system launch
• P-cards launched in U.S. and Canada replacing the petty cash in 2010
• Integrated Employee Relations system launched with the general ledger system in 2007
• Employees who travel are issued AMEX cards
• Logistics has been re-sourced to a new supplier
• Work force at the Michigan plant expanded after receiving tax incentives for re-training in 2011
• Additional common stock shares issued in June 2011
• Additional long-term debt issued in August 2011

Formatting rules:

1.    Times New Roman 12 font 1.25” margins left and right

2.    Double spaced

3.    No right or center justification except for centered headings

4.    Center all caps bold first level headings

5.    Each spelling error with reduce your score by 5 percent. Remember that spell check does not check spelling of all CAP words unless you set it to do so.

6.    No personal pronouns – I, me, us, we – minus 1 Percent for each time

7.    Normally, should have extra space above each heading to separate from previous section

8.    Must have an space between each paragraph or indent each paragraph

9.    Each heading except for Reply at end of page without text will reduce your score by 10 percent.  Proof before printing.

10. Use word percent, not %, but use the number (eg. 10 percent).  Do not use &.

Headings example (not including cover sheet and table of contents)

EXECUTIVE SUMMARY

BACKGROUND

AUDIT SCOPE AND PURPOSE

FINDINGS

I.          TREASURY

A.    UNAPPROVED CASH PAYMENTS

Condition – what happened?

Write information for this level of heading here under the heading, not to the right of the heading.  Do not indent large portions of text – only the heading is indented.

Criteria – what is the standard?

Cause – why did it happen?

Effect – cost or problem?

Recommendation – how does the auditor recommend fixing the problem?

Management Action (Reply) – need heading, but you do not answer for the department (auditee)

Then the next department and finding with all the above statements