Internal Audit Report Project

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). Do not forget date and title and exactly what kind of report this is. Suggest that TITLE (make sure that you have indicated the company and type of report) is at top about 1/3 the way down, distribution list in middle, and date about 1/3 from bottom. Try to somewhat center distribution list, but first letters of first names and titles must line-up exactly, so cannot center whole list.
Jeff Humes VP Finance
Tasha Humes VP Engineering
Tiffany Humes VP Purchasing
Samantha Humes VP Human Resources
Dave Bing AVP Controller
Matt Okopny VP Golf Sales and Marketing
Duane Borkowski External Auditor Partner
D. Robert Okopny Chief Audit Executive
Your Name Manager, Internal Audit
Table of Contents (all caps second page) – generally don’t use dots, and page numbers must line up, do not put the word page next to every page number (put above the column of pages) and should not have 20 page numbers. Keep page numbers to sections only.
EACH OF THE FOLLOWING HEADINGS MUST BE CENTERED ALL CAPITAL LETTERS – they are not centered here as I am putting explanations. Do not ever write next to the heading.
EXECUTIVE SUMMARY – decide what might be important enough for high level executives, such as the BOD and audit committee regarding your results (this is not just a repeat of the findings). Some may be important, some not. Do this section last. Remember the high-level executives do not want extremely detailed information. (DOUBLE SPACE)
BACKGROUND – Summarize information of the entity using an appropriate amount of the information I give to you, 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 ADRIANNA ENTERPRISES GOLF CORPORATION (AEGC), not an external consulting internal auditor. (DOUBLE SPACE). Adrianna Humes is the majority shareholder who started the firm before having an IPO.
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. This should be one or two short paragraphs and can be one section. (DOUBLE SPACE)
Write up of FINDINGS – these are the problems, issues, opportunities or whatever you want to call them SEE FORMAT below. There is a required hierarchy given below – this is the most important part of the report. Each section can be single spaced with a space between each section.
Write up of RECOMMENDATIONS – to fix the problems – this is one item in the list of items for every finding.
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”. This is the only heading that can be at the bottom of the page without text following it.
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 points for no overall evaluation. Similar to a grade in class, or personnel performance review, but not using the same scale (do not use grades). Hint: a table may be necessary, but still need one overall evaluation in this section which is a conclusion for the whole audit. Many students forget to do this and lose points. No matter what you evaluate each finding; you must have an overall evaluation for the auditee (AEGC). I suggest that you send to me to review when close to done as I can save you many easy points. Send for review early on too.
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 (as usually do not use any personal pronouns – I, me, we, and especially you as in “you know’ dude:
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. This has no relationship to the past two assignments. Company is a large food services provider.
1. Employees at Canton, MI were observed in the food preparation area without sanitary and protective equipment. One other employee was treated for eye irritations in this area due to a lack of safety glasses. Additionally, one employee lost a thumb last year in the shop in Suzhou, China because of lax safety standards, and one employee lost a small toe in the fork lift area that may have been protected by the required steel-toed shoes and protective eye shields if they had been wearing them.
2. Some travel expenses payable was way over paid and explained as the funds were used for making payments to foreign officials for the purpose of influence. This is a very serious a violation of the FCPA.
3. The required background checks for all new employees were only performed once out of every three instances. HR has been written up previously about this. After investigating, some new employees were terminated because of embarrassing social media activities which have hurt our reputation and two others were found to have embezzled approximately $16,000.
4. Purchasing did not submit timely direct material pricing cost data required for developing direct material cost data for the standard cost budgeting system. This caused faulty menu costing and price standards and variance analyses. Foods were underpriced by 2.7 percent and subsequently the company incurred a loss of in sales of $2.5 million in the first quarter of 2020, because prices were increased and resulting sales revenue was lower due to a lack of competitive pricing.
5. 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 Machu Picchu and Cusco which resulted in the lack of a diverse applicant pool. This was not a fraud, but was found during our separate diversity audit.
6. Last year’s audit recommendations regarding a stronger policy on social media usage by employees has not been implemented despite a previous agreement by the auditee. These policies were to be instituted due to the termination of four employees who posted inappropriate content and caused a negative reaction by the public using their Twitter Accounts (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, but skip the word Department).
7. An outsourced function which handled a venue food services project in Mexico for a new research facility worth $12.9 million was found to be started without a right-to-audit clause included in the contract. 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.
Example of one finding (these are headings without content): Use this format – do not right justify anything, do use hanging indents, be consistent. Do not use embedded headings. Copy the following exact format. Area has roman numerals, first finding in that area has letter, then follow with Condition, etc. Do not use dashes, and do not write on the same line as a heading. It looks better if you single space within each item, then double space between each item. Definitions of these categories are at the end of this sheet and also in the ISPPIAs and Gleim.
FINDINGS (everyone will use this major heading)
I. TREASURY (This is an example of a department; you must select all departments based on the seven findings)
A. UNAPPROVED CASH PAYMENTS (The name of the finding given by you – MUST STATE AS A NEGATIVE AND DESCRIPTIVE ENOUGH SO READER KNOWS WHAT IS BEING DISCUSSED – SHOULD NEVER BE MORE THAN ONE LINE) – this is a heading, do not ever put text or a dash and text next to a heading
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.
Reply (This is the only heading which can be at the bottom of the page without text).
• Total employees — 1,600 (500 salaried, 1,100 hourly)
• Total payroll – Salaried — $32.5 million, Hourly — $52.0 million
• Hourly work force unionized in Brazil, China, Mexico, Peru and U.S.
• Total Benefits – $27.0 million
• Purchasing Department – 9 employees, including 3 temps
• Industrial Engineering – 5 employees
• Annual purchases — $27.0 billion
• Total Revenue – $9.1 billion
• Accounts Payable highly centralized with 11 employees
• Annual project expenses — $14.1 million
• Research Centers in U.S. (Utica, MI), China (Hangzhou, China) and Puerto Cinco, Mexico
• Plant in China just recently expanded
• Accounts Payable system launched in 2018.
• EPS for 2019 $1.75; a decrease from $2.11 in 2018
• Accounts Receivable totaled $1.9 billion
• New line of credit established with Global Bank International
• New product line was launched in the first half 2018
• Accounts Receivable call center co-sourced in India
• New general ledger system launched in 2016
• Purchasing system upgraded with the general ledger system launch
• P-cards launched in U.S. and Canada replacing the petty cash in 2015
• Integrated Employee Relations system launched with the general ledger system in 2014
• Employees who travel are issued AMEX P-cards
• Logistics has been re-sourced to a new supplier
• Work force at the Michigan facility expanded after receiving tax incentives for re-training in 2016
• Additional common stock shares issued in June 2014
• Additional long-term debt issued in August 2017

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