CASE ANALYSIS

Bes 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 Bes Corporation's Bhiee 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 department. Some workers are trained on the job. The departmental supervisor is held accountable for labor efficiency variances but does not have qualified staff or sufficient time to train the workers properly. The supervisor 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 specific computer system. Although the system is up and operating, the results are less than desirable. The software and hardware meet the specifications of the feasibility study, but there are several functions unique to this division that the system has been unable to accomplish. Linking of files has been a problem. For example, several vendors have been paid for materials not meeting company specifications. A revision of the existing software is probably not possible, and a permanent solution probably requires replacing the existing computer 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 has identified a defect in the product as a cause of the injury. There is insufficient information 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 Bes' board of directors.

Question:

1. What are the procedures to be done in terms of fieldwork stage of an internal auditor as a response to audit finding number 1 (excessive turnover)?
2. What are your possible recommendations as an internal auditor as a response to audit finding number 1 (excessive turnover)?
3. Based on the audit findings above, are there any objectivity problems with Bes Corporation? Explain. Furthermore, if you happen to answer "yes", provide also recommendations on how minimize/eliminate any objectivity problems. If you happen to answer no, after your explanation, just indicate "recommendations not applicable"
4. What if the internal audit department is part of the corporation's controllership function, and copies of the internal audit reports are sent to the board of directors, evaluate the appropriateness of the location of the internal audit department within Bes' organizational structure.