Internal Audit Problems

1. Your CPA firm has been contracted by the state to serve as the internal audit function for The Commission on Workforce Development. The Commission was established several years ago by the state legislature to increase the job skills of individuals receiving public assistance and help them to obtain employment so as to be able to support themselves and their dependents. To accomplish this objective, the Commission enters into contracts with private sector contractors to train individuals in computer data entry, local area network administration, cable and telecommunications installation, auto mechanics, and other fields where there is an acknowledged need for employees.

The program works as follows:

The Commission staff identifies individuals eligible for enrollment in the program through referrals from case workers in local county and city welfare departments. The Commission staff then determines whether the individuals need general skills, specific skills, or both and assigns them to entities with which the state has contracted for training services. The Commission also determines the specific fields in which training will be provided through periodic assessments of employer needs across the state. For purposes of this assessment, the state is divided into five regions. Training offerings are set for each region based on surveys of employers current and expected needs.

Contractors are responsible for a) providing individuals with the general work skills, if needed (literacy, basic math, etc.) and b) providing all individuals with specific work skills (training in auto mechanics, typing, network administration, etc.). Contractors are also responsible for helping all trained individuals to obtain employment.

Your firm uses a business process approach to internal auditing.

A. List four key activities/processes involved in the operations of the Commission (there are more than four). Prioritize them in terms of significance to the boards operations (1 = most significant, 4 = least significant).

B. For the activity/process you ranked the most significant, identify and evaluate three risks. For each risk, identify a control that would help mitigate the risk. [I suggest you prepare a table with the following columns: Risk, Impact (H, M, L), Probability (H, M, L), Control.]

C. Design an audit procedure to test the operating effectiveness of each control identified above. [You may add an additional column to the table under B or create a stand-alone table with controls and audit procedures]

2.

Recently, several states have outsourced some of the services traditionally provided by government employees. In one state, the Department of Health and Human Services (Department) has outsourced its electronic benefit transfer services to eFunds Inc. Under the contract, eFunds Inc. handles the electronic distribution of food stamp programs, including transaction processing, reporting, contract management, contract settlement, operations support, help desk services, and project management. For cost reasons, eFunds Inc. sent the work to five offshore service centers it owns in India.

A. Identify two new risks that this offshore outsourcing arrangement introduces to the states Department of Health and Human Services.

B. What role should the Departments internal audit function take to assist the Department in dealing with these risks?

3.

You are the director of internal audit at Sargon Industries, a large publicly traded manufacturing company. You recently met with the manager of data processing and expressed the desire to establish a more effective relationship between the two departments.

Subsequently, the manager of data processing requested your assistance on a new computerized accounts payable system being developed. The manager recommended that the internal audit function assume line responsibility for examining suppliers invoices prior to payment. The manager also requested that the internal audit function make suggestions during the development of the system, assist in its installation, and approve the completed system after making a final review.

Evaluate each of the following requests made by the manager of data processing within the context of The IIAs International Professional Practices Framework (that is, the Definition of Internal Auditing, the Standards, the Code of Ethics, Implementation Guides, etc.) in terms of its potential impact on internal auditors objectivity.

A. The request that the internal auditor be responsible for examining suppliers invoices prior to payment.

B. The request that the internal auditor make suggestions during the development of the system.

C. The request that the internal auditor assist in the installation of the system and approve the system after making a final review.