Van Staveren Corporation has an internal audit department operating out of the corporate headquarters.

Various types of audit assignments are performed by the department for the eight divisions of the company.

The following findings resulted from recent audits of Van Staveren Corporation's Maritimes Division.

1. One of the departments in the division appeared to have an excessive turnover rate. Upon investigation, the personnel department seemed to be unable to find enough workers with the specified skills for this particular department. Some workers are trained on the job. The departmental supervisor is held accountable for labour efficiency variances but does not have qualified staff or sufficient time to train the workers properly. The super¬ visor holds individual workers responsible for meeting predetermined standards from the day they report to work. This has resulted in a rapid turnover of workers who are trainable but not yet able to meet standards.

2. The internal audit department recently participated in a computer feasibility study for this division. It advised and concurred on the purchase and installation of a spe¬ cific computer system. While the system is up and oper¬ ating, the results are less than desirable. Although the software and hardware meet the specifications of the feasibility study, there are several functions unique to this division that the system has been unable to accomplish. Linking of files has been a particular problem. For exam¬ ple, several vendors have been paid for materials not meeting company specifications. A revision of the exist¬ ing software is probably not possible, and a permanent solution probably requires replacing the existing com¬ puter system with a new one.

3. One of the products manufactured by this division was recently redesigned to eliminate a potential safety defect. This defect was discovered after several users were injured. At present, there are no pending lawsuits because none of the injured parties have identified a defect in the product as a cause of their injury. There is insufficient data to determine whether the defect was a contributing factor.

The director of internal auditing and assistant controller is in charge of the Internal Audit Department and reports to the controller in corporate headquarters. Copies of internal audit reports are sent routinely to Van Staveren's board of directors.

Required

a. Explain the additional steps in terms of field work, preparation of recommendations, and operating management review that ordinarily should be taken by Van Staveren Corporation's internal auditors as a consequence of the audit findings in the first situation (excessive turnover).

b. Discuss whether there are any objectivity problems with Van Staveren Corporation's internal audit department as revealed by the audit findings. Include in your discussion any recommendations to eliminate or reduce an objectivity problem, if one exists.

c. The internal audit department is part of the corporate controllership function and copies of the internal audit reports are sent to the board of directors.

(1) Evaluate the appropriateness of the location of the internal audit department within Van Staveren's organizational structure.

(2) Discuss who within Van Staveren Corporation should receive the reports of the internal audit department.

(CMA adapted)