a. For the previous exercise (E-5), which of the two types of follow-up review would represent the greater risk to the company — the document review at headquarters or the on-site review?

b. Suppose the auditors decided that three procedures should be used to follow up the recommendation that more highly qualified expedition leaders be hired. The first procedure is to determine which of the expedition leaders employed at the time of the audit had unacceptable levels of experience. The second procedure is to verify that those leaders with unacceptable levels of experience had been replaced by leaders who were better qualified. Suppose further that the auditors perform both of these steps by reviewing resumes and employment records. What additional step or steps might the auditors perform in order to decrease the risk that (1) the new leaders do not possess the level of expertise that their resumes purport and (2) that they may not be qualified to lead the company’s expeditions in Mexico?

Data from in E-5

The Eagle’s Nest Resort Communities, Inc. is a diversified company with three luxury resort communities (one each in Hawaii, Texas, and Maine); a ski apparel production division located in Denver, Colorado; a travel business specializing in high adventure, hunting, and fishing expeditions in Alaska, Canada, and Mexico; and a luxury cruise ship operating in the Carribean. Headquarters are located in Denver. Last year’s gross revenue from each division of the business may be summarized in round figures as follows:

The company’s internal auditors recently completed an audit of the Mexico High Adventure operations. It seems that a number of complaints had been received from clients who said their accommodations were not comparable with those advertised in the company’s literature. Clients also complained about bad food, and one group actually got lost for a week in the southern jungles of Mexico because of a reportedly ill-prepared expedition leader. The group was rescued by another of the company’s expedition leaders who led the search after the group was two days late returning.
The auditors found that revenues from the Mexico operations had declined over the past three years and that the operations manager had been trying to improve profits by minimizing costs. As a result, he had hired inexperienced expedition leaders who would work for less money, and he had changed the hotel chain where expedition members gathered before and after their adventures. The new hotel chain was advertised as a luxury chain, but was willing to sign a less expensive contract with the company than the previous chain. Although the new chain was not quite of the ultra-luxurious quality that the original chain was, the operations manager felt that the clients would not object. He also felt that they might even prefer the new one, since the decor was a bit more rustic and would suit the atmosphere of an outdoor adventure.
The auditors recommended an immediate change in policies so that more highly qualified expedition leaders would be recruited and hired and the previous hotel chain would be retained. The auditors also recommended that a new advertising and promotional campaign be designed to counter the diminished reputation of the company’s operations in Mexico.

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Division Resort Communities Ski Apparel Travel Business Cruise Ship TOTAL GROSS REVENUES Gross Revenue $25,000,000 3,000,000 12,000,000 20,000,000 $60,000,000