CLIENT MEETING NOTES

Client Name Anderson Building Group

Preparer Benjamin Smithers

Engagement Title ABG

Date Prepared 18.5.20

Period 30.6.20

Reviewer Vincent Wang

Work Paper ACM1.1

Date Reviewed 20.5.20

WORKPAPER OBJECTIVE(S): First client meeting to discuss 2020 Audit between Vincent Wang and Benjamin Smithers and ABG CEO (18.5.20)

1. Ben has heard rumours in the industry that four staff were dismissed due to fraudulent and dishonest behaviour.Ben and Vincent ask the ABG CEO about this issue at the meeting.The CEO indicates that yes four staff were dismissed but that is it was due to reduced work on projects and their jobs were made redundant.
2. The Directors Remuneration Package Report presented to the previous Annual General Meeting (AGM) advised shareholders that directors would be paid $50,000 and the Chair $80,000 for the year to June 30, 2020.Shareholders had agreed to this package but the CEO advised that at the recent Special General Meeting, this issue was raised because the Chair mentioned that there was an increased expectation on directors time in response to increased activities due to Covid-19.The Chair propsed that the director's packages be revised to $70,000 for directors and $100,000 for the Chair.The Shareholders had not been happy with this increase.
3. The management letter from the previous audit firm for the FY2019 audit, identified weaknesses in quoting of jobs at the Townsville and Darwin locations and discrepancies in inventory controls particularly in relation to offcuts.There was possible fraudlent activity in relation to offcuts but all staff in Townsville have since left the company and the Darwin office has new staff.Notes in the management letter, indicate that there are serious control risks between the quotation and delivery of goods and services by ABG with poor internal controls aroundinventory, lack of segregation of duties and authorisation weaknesses compromising the debt covenant arrangements with the bank.
4. Your initial review of the financial statements for ABG confirm a good first half year and a significantly reduced (compared to budget) second half.Covid-19 has impacted the revenue and all capital projects have been suspended other than those where there are workplace health and safety compliances required e.g. in the Darwin office, there was a fire in one timber yard in October 2019 and inventory had to be rehoused in sheds in a different geographical location (in Darwin).
5. The CEO commented that he was happy to have the new auditors on board. He said that JWCA offered a much cheaper alternative than other tenderers and the previous auditor. Also, he commented that JWCA had a younger team noting that Ingrid was already known to many accounting staff as she had been on a 3 month contract in September to December 2019 when the previous auditors were finishing the FY2019 audit.

CLIENT FRAUD QUESTIONNAIRE RESPONSES

Client Name Anderson Building Group

Preparer Benjamin Smithers

Engagement Title ABG Date

Prepared 18.11.20

Period 30.6.20

Reviewer Vincent Wang

Work Paper ACM1.1

Date Reviewed 20.5.20

WORKPAPER OBJECTIVE(S) Fraud Questionnaire and Answers provided by Management & Audit Committee (AC)

Fraud Questions

• Do you have any knowledge of any fraud perpetrated, alleged or suspected that could result in a material misstatement of the entity's financial statements?
• Do you have any knowledge of any other perpetrated, alleged or suspected fraud (regardless of value)?
• Have you received any communications from employees, former employees or others concerning allegations of fraud?
• What incentives and pressures do you perceive to be on management and how are the related fraud risks managed?
• What process do you undertake to assess the risk of fraud in the entity?
• What is your understanding about the risks of fraud in the entity, including any specific fraud risks the entity has identified or any account balances or classes of transactions for which a risk of fraud may be more likely to exist, and why?
• What controls are in place to ensure that management has implemented the necessary programs and controls to mitigate specific fraud risks, or to help prevent, deter and detect fraud?
• Describe any general policies or procedures in place to discourage fraudulent activities and encourage whistle blowing?
• How do you communicate your views on business practices and ethical behaviour?
• Has management reported to Those Charged With Governance (TCWG) on the entity's internal control and how management believes internal control serves to prevent, deter, or detect material misstatements due to fraud?

ABG Management Responses

• We were notified by the Bank that some receipts for ABG were diverted to a different BSB and Account number.
• No knowledge
• No knowledge
• Chief Risk Officer (CRO) is part of the Chief Operating Officer's (COO) position.Ongoing assessment of risks is in each person's job description.This is also a quarterly standing item on the Audit Committee and the full board agendas.
• The Chief Financial Officer (CFO) manages fraud risks through a controls and incident report approach with continuous monitoring through an escalation process and through regular compliance reporting each quarter to the CEO, the AC and then to the Board.Operational risks are the purview of the CEO and other senior staff.
• We focus on an enterprise risk management process and in that process we did not identify any fraud risks
• Management of ABG have risk and compliance linked to their positions (in their job descriptions).All staff attest their reporting and escalation compliance on an annual basis.
• Induction processes and review processes in place to ensure all staffunderstand their obligations and their rights.
• Management are required to have staff meetings within their team/ division/location at regular times (these are held weekly, monthly or quarterly).
• Management are required to have staff meetings within their team/ division/location at regular times (these are held weekly, monthly or quarterly). Management reports to TCWG via the Internal Auditor's (IA) reports, the AC reporting process and then to the Board.The IA section agree to an audit plan which is approved by the AC each year at its May meeting.

ABG Audit Committee (AC)Responses :

• We are not aware of any material misstatements in the entity's financial statements
• We understand but were not advised directly by management or internal audit that four staff (from the Brisbane warehouse) were dismissed for alleged fraud but no further criminal action was taken.Someone external to the organisation advised one of the directors on the audit committee they had heard a rumour about the incident.
• An internal audit report suggested there was a suspected case in the Townsville office where staff were undertaking fraudulent activities in relation to selling of offcuts and with Covid-19, they were stood down and have since been terminated.
• A strategic risk register is operationally updated by the staff and presented to the Audit Committee (AC) at its quarterly meeting (with the COO/CRO in attendance).The AC reports to the Board meetings highlighting any areas of goverance concerns.
• Each quarter, the risk register is reviewed by management and presented to the AC and then to the Board.Each year, at the Board's yearly strategic planning meeting, the key strategic risks in the risk register are confirmed with internal audit.
• We are concerned that their may be fraud risks in the entity which impact on the financial statements which are not being reported up to the audit committee.
• ABG has a policy and procedures portal which includes risk, fraud, compliance and financial management for all staff and governance.Appropriate approval (for budgets) and delegations, regular scrutiny of actual and budget of accounts by the Board. The updated whistle-blowing requirements were issued to all staff prior to 1 January 2020.
• The Board Chairman has an annual newsletter to all staff and Those Charged With Governance (TCWG).
• Management presented its report on the entity's internal control systems and rated them as sound and robust. An internal audit report to the AC indicated that there were a number of control issues in relation to supplier payments and inventory management particularly at the supply locations of Townsville and Darwin.

QUESTION 1:

WORK-PAPER OBJECTIVE(S) Evaluate the potential fraud risks for ABG Ltd audit for the Audit Engagement Partner

1. SUMMARY OF POTENTIAL AUDIT FRAUD RISKS (ATLEASE 5)?
2. KEY RECOMMENDATIONS (ATLEAST 5)?
3. CONCLUSION

QUESTION 2:

WORKPAPER OBJECTIVE(S) Evaluate the integrity of ABG management and any other special circumstances or risks (including fraud) with undertaking the ABG FY2020 Audit for notice to assist Audit Engagement Partner (AEP)

1. ABG MANAGEMENT INTEGRITY AND OTHER SPECIAL AUDIT ISSUES(ATLEASE5)?
2. KEY RECOMMENDATIONS (ATLEAST 5)?
3. CONCLUSION - OVERALL CLIENT EVALUATION OF ABG BY JWCA ?