‣ Board-Audit Committee: The 13 board members are prominent celebrities, politicians, and business people. Bernie Lay serves as both the Chairman of the Board and CEO. Bernie was the CFO for five years before being appointed as the CEO. The board members are selected by the Chairman of the Board and approved by a majority of the Board. The five-member audit committee includes the Chairman of the Board and four members appointed by the Chairman for a three year term. The Board also includes a nominating committee, a risk committee and a compensation committee. The Board and the subcommittees meet for one day each quarter. The CFO is responsible for the agenda and financial reports. THE Chief Audit Executive (CAE) and the external audit partner share a one-hour slot on the agenda at each meeting.

‣ Chief Executive Officer: The CEO, Bernie Lay, has a military background and has established an autocratic management style. He feels that this approach will develop a more efficient and effective structure for a decentralized organization.

‣ Chief Financial Officer: Scott Z. Best, the CFO, previously served as the supervisor of accounts payable and was promoted by the CEO. He was the manager in charge of the Tyronco account when he worked for the attest auditors. He maintains a good working relationship with Temple and Duncan, a small regional firm in Geneva.

‣ Operating Management: Each participating country has an operating manager selected by the CEO. The managers report directly to the CFO.

‣ Internal Audit: Martha N. Cider, the Chief Audit Executive, served as the lead auditor on the Tyronco engagement when she worked for Temple & Duncan. She was hired because of her knowledge of the financial aspects of Tyronco. As part of a cost-cutting move she reduced the audit staff from 21 to 13 and cosources the collections, payables, and purchasing audits to Temple & Duncan. The reduction in staff was explained by increased usage of the data-mining technology. Martha was in the MBA program with Bernie and Scott and is considered a rising star in the organization. Management requests from the CEO and CFO consume about 90% of available audit time. The CEO feels that the auditors should be able to complete their audits from the headquarters location by utilizing technology. He has reduced the travel budget but significantly increased the budget for systems training and audit software. The hiring focus is now on systems knowledge.

‣ External Auditors: Temple and Duncan (T&D) have been the low bidder the last three times the organization has requested attest proposals. The external auditor proposals are reviewed by the CFO who recommends a firm to the Audit Committee for approval. Tyronco represents 60% of T&D’s audit revenues and 80% of their consulting revenues.

‣ Purchasing: The purchasing function is decentralized with a purchasing agent located in each of the 13 countries that qualify for food and non-prescription medicine. The Vice-President of Purchasing at headquarters has requested that the 13 purchasing agents purchase 50% of all items from vendors located in the same country as the recipients. The agents operate somewhat autonomously and can sole-source or utilize competitive bids.

Local purchases are typically 20-30% higher than obtained through a competitive bid process. The CEO supports this approach since he feels that it establishes good relations with local government officials and business people.

Identify the five major risks in the Purchasing Department. List the controls you would expect to find to mitigate the risks and the audit steps that would be utilized to ascertain that the control mitigates the risk.

Purchasing
	Risk At Risk	Control	COSO Classification	Audit Step
1.
2.
3.
4.
5.