1 Internal auditors often assist management in performing internal review assignments covering, for example, human resources, procurement (purchasing), marketing and treasury activitles. Such reviews involve:

(i) the identification of risks

(ii) the identification of control systems and procedures implemented to manage those risks

(iii) tests of controls to ensure that internal controls are operating effectively

(iv) an evaluation of the overall effectiveness of the design and operation of controls in managing the risks identified

You are the internal auditor for a private company, Cleanco. Cleanco provides cleaning services to shops and offices and has a reputation for high-quality work. You have been asked to review the human resources, procurement and marketing functions within the company.

Cleanco employs about 500 cleaning staff, all of whom are on the payroll and most of whom work part-time. Cleanco does not employ subcontractors. Cleanco has a high turnover of staff.

The company buys its computers, office stationery and furniture, cleaning materials, equipment and work clothes for staff, from a variety of different suppliers. It processes its payroll In-house.

The company has recently decided to outsource its marketing to a large, aggressive, third party company that will advertise Cleanco's services by means of direct mail, sometimes by offering discounts; this company has been criticized in the past for breaching advertising regulations. There is growing price competition in Cleanco's market.

Cleanco is struggling to maintain its profitabllity and would like to expand its client base. Cleanco has three main functions:

(i) human resources

(ii) procurement

(iii) marketing

Required:

For each of the three main functions at Cleanco describe the:

(a) risks that you expect the company to face;

(b) controls you expect to be in place to manage the risks you have identified in (a), above;

(c) tests of control you should perform to check that the controls you have identified in (b) above are operating properly.

You may present your answer in tabular format, if you wish. (ICAEW)