You are a CIA and the director of internal auditing in a publicly held manufacturing corporation, Conrod, which deals in consumer products. The company has developed a new line of baby carriages. Large sums have been spent on the research, development, and marketing of the product. The end result of the research is an attractive and exceptionally comfortable carriage.
A great deal of the comfort is attributable to Product X material with which the carriages are padded. The padding makes for comfort and for protection of the infant from any sharp corners or hard edges. Your auditors have made a review of the new processes developed for the product. During their review of documents, they found several memoranda signed by Sander Deems, the company's manager of the safety' department, to Dion Manfred, director of manufacturing. Sander is directly responsible to Dion in the organizational hierarchy. In the memoranda, Sander pointed out that Product X is inflammable and dangerous. Dion has ignored the warnings. Your auditors have done some additional research on the subject and have confirmed Sander's fears. Accordingly, they discussed the matter with Dion. He firmly rejected an\' change in the material used to pad the carriages. Hundreds of pounds of Product X had already been purchased, the production lines were already operating, costs were poking through the budgeted amounts, and schedules were tight. You talked the matter over with Dion, but he remained adamant. He said that the carriages were to be produced as designed. Customers were already clamoring for them; he had a commitment to Charles E. Osgood, president and chief executive officer of Conprod, to get the carriages out on time and at reasonable cost; and no internal auditors were going to keep him from meeting his commitment. You told Dion that you felt obligated to discuss the matter with Mr. Osgood. Dion said, "Be my guest."
Accordingly, you set up a meeting with Mr. Osgood and presented the facts to him. Osgood was not only negative to your presentation, he was furious.
"This is a technical matter and your people are not safety or production technicians. Your people have no business poking their noses in matters which are beyond their competence.
Besides, I know of no danger from Product X. It's been used for yeai^s.
Get your people off the audit and let Dion produce his carriages as he sees fit."
You were stunned by Mr. Osgood's reaction. But you were convinced of the danger and felt you could not in good conscience turn your eyes away.
So you said, "Mr. Osgood, I Deepak wish I could let the matter drop. But I'm convinced we have a problem that needs resolving, and I must tell 'Ou that I'll have to bring it before the audit committee of the board of directors."
Mr. Osgood looked at you furiously, but he said nothing, turning to tile pages on his desk. He was well aware of your charter that gave you access, free and unfettered, to the audit committee. You then gained an audience with the audit committee and presented your case to them. You had asked Sander to accompany you, but Sander declined. Off-the-record, however, Sander assured you that tile danger was real, and he even supplied you with independent studies supporting his thesis that Product X was inflammable and extremely toxic when it burned. The members of the audit committee, none of whom were members of Con prod's management, listened attentively and politely to your presentation. When you were through, they conferred briefly and told you that they would bring the matter up before the whole board and give you their decision.
Two days later you were called before the audit committee. They in formed you that it was the opinion of the board that the production line would not be stopped. They said that tliey were aware of no serious accidents involving Product X and that it would be unfair to the company and its stockholders to scrap what seemed like a lucrative program. They therefore had no intention of intervening.
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What are your responsibilities as a certified internal auditor under such circumstances?