AFR Companys internal audit function recently completed several audits of the companys various employee benefit plans. The internal auditors working papers contain the following audit observation:

Savings Plan Contributions Made to Ineligible Employees Accounts

AFR Company has an employee savings plan that provides a matching contribution to participating employees savings accounts. When an employee stops participating in the plan, the company suspends matching contributions. During the internal audit functions examination of the plan, we found that the company was still making contributions to the accounts of a number of employees who had ceased to participate. More than US $85,000 had been contributed to such accounts. Management now is trying to recover erroneous company contributions.

Required: Audit observations are pertinent statements of fact that support auditors conclusions and recommendations. In addition to clearly identifying the issue or question being examined, all well-written observations should include the following elements: criterion/criteria, condition(s), effect(s), and cause(s).

In the space provided below, either write the specific passage from the observation that contains each element listed above or state that the element was not covered in the observation.

Criterion:

Condition:

Effect:

Cause: