Background Whitewater Resort Ltd. (Whitewater) is a publicly listed company based in British Columbia. Its operations include skiing in the winter; hiking, kayaking and sport leisure activities in the summer. Whitewater provides meals and accommodations for all budgets including a backpackers' hostel; family cabins; and a five-star resort hotel. Serhei and Olena Mazur own the majority of the shares in Whitewater. Serhei is the Chief Executive Officer (CEO) and Chair of the Board of Directors (the Board); Olena is the Chief Financial Officer (CFO) of Whitewater. Serhei and Olena have a laid-back/informal management style. According to Olena, they take a hands-off approach to managing their employees at Whitewater and trust that the employees work hard for the company - hence they try not to monitor them too closely to lose that easygoing vibe. In particular, Olena mentions that the accounting staff are very loyal to the companyso much so that many have never taken holidays, and they rarely take sick leave! Serhei and Olena have not bothered much in the past with documenting formal procedures and policies in both the Human Resources department and the Accounting department. However, based on recommendations from the Audit Committee (subgroup of the Board) the couple have requested that the accounting staff start documenting the more common accounting procedures. Serhei and Olena do not conduct annual employee performance reviews; they rely on their staff to tell them when there is a problem or if they want a raise in their wages. Whitewater currently does not have a formal hiring procedure in place and rely on word of mouth to hire their employees.

The Accounting Department There are three (3) people currently employed in the accounting department, the most senior of whom is Diego de Souza. Diego heads the accounts department and reports directly to Olena - however, no formal job descriptions exist for any of the accounting staff so direct reporting lines and tasks are not clear. Diego is in his fifties and plans to retire in two or three years - originally Diego was a ski instructor at Whitewater but after an incident with misappropriated company equipment, the Board wanted to fire him. Olena, felt that the company should give him another chance so transferred him to the accounting department where she can watch him. Diego prides himself on his ability to delegate most of his work to his two junior staff members, Jiaohua and Yasmine. He claims he has to delegate so much because he is very busy developing the policy and procedures manual for the accounting department. The work that Diego delegates includes (but not limited to); opening all mail, reviewing purchase invoices to determine if payment should be made, creating the cheques including manual cheques when there is an urgent need to pay a vendor, recounting the cash received from the cash registers in the operational (i.e., restaurants, accommodations, and gift shops) side of the resort

depositing the cash in the bank (any of the two junior accountants will do it when they have the time to walk into town to make the bank deposit), performing all reconciliations - including the bank reconciliation, posting entries to the various journals, and performing the payroll function. Yasmine recently graduated with a Business Accounting diploma from Algonquin College and has no prior accounting experience. Jiaohua works part-timecoming into the office on Mondays, Wednesdays, and Fridays. Jiaohua is responsible for posting all journal entries into the accounting system and completing the payroll function. Yasmine does the balance of the work, but they often help each other out in busy periods. Jiaohua authorizes Yasmine's transactions, and Yasmine returns the favour by authorizing Jiaohua's transactions. Together, they usually can make the accounts balance. Source: Adapted from the Institute of Chartered Accountants Australia's CA Program's Audit and Assurance Exam, May 2008. Provided courtesy of Chartered Accountants Australia and New Zealand

Required: Your group are external public accountants and work for an auditing/assurance firm (name it whatever you like - humour is always welcomed!). You have been hired by the Board to perform a review of the current; 1. control environment, and 2. control activities of the company. Specifically, the Board is seeking advice on how to improve the internal controls at Whitewater. They would like your advice on how to improve the control environment and specific control activities. As such, your report should address the following:

1. The Control Environment Your report should identify three (3) weaknesses in the control environment and address:

a. The weakness identified - discuss each one separately,

b. Discuss the implication of each weakness and what could result if the weakness is not corrected (i.e., what risks/issues/problems may result)

c. Provide a recommendation to correct/fix each weakness.

2. The Control Activities Your report should identify five (5) internal control (activities) that are weak or non-existent and need to be improved and/or implemented immediately. Your group should focus on the most significant control weaknesses that need immediate attention and address:

a. The Weakness identified in a current control activity or a non-existent control activity - discuss each one separately

b. Discuss the implication of each weakness and what could result if the weakness is not corrected (i.e., what risks/issues/problems may result)

c. Provide a recommendation to correct/fix each weakness.