Internal Audit Project (virtual audit) - I am lost and need urgent assistance

Project Objective

The objective is to provide students with hands-on experience as internal auditors; thereby, seizing the opportunity to combine theory with practice.The execution of this project will encourage students to "think outside the box" and provide potential solution(s) to real world issue(s), thus bridging the transition gap from academia to industry.

You recently assumed the role of audit manager at XYZ corporation, a publicly traded company.You have been assigned a team of seven staff auditors to perform an operational audit of XYZ's operations for the period ended December 31, 2019.The audit department is unorganized and there is little or no structure as the CAE has been ill for months, plus the other two audit managers have recently resigned.

You spoke briefly to the CAE via the phone and he informed you that the audit is critical as senior management is looking forward to the audit, to gain an understanding of the status of control within the organization - there have been rumors that there is widespread fraud within the company.

Required/Activities to be executed

You are required to plan and execute the audit and prepare the audit report for submission to the CAE, the Business Unit and Senior Management. To accomplish your goals, you are expected to complete & document all the major steps within the audit process, that is from the planning phase to the reporting phase of the audit.

1.Select a publicly traded corporation (Berger Paint) and assume that, that's the company for which you are the Auditing Manager.

2.You are required to define the scope and objective (Berger Paint), along with the expected timing of the audit, and inform the business unit/auditee accordingly.

3.Draft the audit engagement letter to inform the business unit/auditee of the upcoming audit (include the scope and objective of the audit).

4.Prepare detailed planning memo, which should include:

a.Overview of the entity - utilize the Jamaica stock exchange database and the registrar of company to obtain information about the company to prepare overview of the organization and its industry.

b.Prepare risk assessment of the organization - utilize the Jamaica stock exchange database and the registrar of company sites to obtain information about the company, plus other published industry data to assess potential risks.

c.Prepare nd initial assessment of controls based on prior year external audit report and other related information.

d.Prepare the audit budget and assignment of responsibilities.

e.Identify any potential regulatory requirements if applicable.

f.Any other applicable factors

5.Prepare the audit questionnaire that will be used to gather information from the business unit for the areas to be audited.

6.Prepare detail audit programs for the areas to be reviewed

7.Prepare the opening meeting presentation (PowerPoint)

8.Document all the audit work performed

9.Prepare the closing meeting presentation. (PowerPoint)

a.Each group will present their opening meeting presentation and closing meeting presentation to the class which will account for a portion of the group's score.

10.Prepare the audit report, summarizing your findings and recommendations, for submission to the CAE, the Business Unit and Senior Management. Use the standard audit report format outlined in your text/lecture as a guide.

Observations

The Following are the observations that you and your team noted during the execution of the audit

For the past 6 years, Elaine Wright has been an employee of XYZ company. Elaine is a very diligent employee who rarely calls in sick and takes her vacation days staggered throughout the year so that no one else gets bogged down with her tasks for more than one day.Elaine handles all of the point-of-sale cash receipts and prepares the daily deposit for the business. Furthermore, Elaine opens the mail and deposits all cash receipts (about 30 percent of the total daily cash receipts). Elaine also keeps the accounts receivable records and bills the customers who purchase on credit.

The XYZ Company employs 643 production, maintenance, and janitorial workers in three separate departments. In addition to supervising operations, the foreman over the departments are responsible for recruiting, hiring and firing workers within their areas of responsibility. The organization attracts casual labor and experiences a 20 to 30 percent turnover rate in employees per year. Each week, the foremen gather the time cards, review them for accuracy and sign and submit them to the payroll department for processing. In addition, the foremen submit personnel action forms to reflect newly hired and terminated employees.Employees clock on and off the job each day to record their attendance on paper timecards. Each department has its own clock machine that is located in an area away from the main production area.

In February 2019 chemicals leaked from a tank situated on XYZ premises and

and seeped onto the parking lot and the city's underground water table. A number of employee vehicles were damaged and required repainting.The company agreed to reimburse employees for the cost of these repairs. Employees were instructed to submit their bills for the repairs.After an extended investigation executed by the City's engineeres it was noted that that XYZ's chemical tank was not properly installed, neither was it maintained in accordance with the city's regulatory guidelines. Based on the City's predefined penalty guidelines, it is estimated that XYZ will be fined a minimum of $2m.Happy Manufacturing, which is located in a neighboring city had a similar chemical leak and the company (Happy Manufacturing) was fined $.2M.

In September of 2029, it was rumored that employees were submitting fake invoices for car repairs relating to the chemical leak.After making inquiries, it was discovered that some of the "repairs" were for expensive paint jobs, upgrades, buffing, body repairs, and waxing. Further investigation revealed that thousands of dollars were reimbursed for paint jobs on cars that were damaged prior to the industrial accident. Moreover, some employees had turned in bills for similar jobs just a few months apartin other words, some cars were reimbursed for the same repair twice.

It was noted that XYZ company hired an oil field technician as a Project Manager - Worldwide (PMW) through a job agency (Agency 1).XYZ company usually relies on job agencies to provide skilled contractors to work on large projects in isolated and/or remote destinations.Sometimes a contract worker is hired through a chain of agencies, causing the employer to be at one end of the chain and the contract worker at the other.Agency 1 was well-known for providing employees and labor contractors who could work in the oil and gas industry, and the PMW was well qualified for the position.

Once hired, The PMW requested four additional staff.These four staff members were known to the PMW through another job agency (Agency 2).They were hired on his recommendation and their contracts were routed through Agency 1, same as the PMW.The four individuals were hired without the normal background checks because they were known to the PMW. The team did maintenance work at the sites and was tasked with continuous performance of maintenance activities.They worked long hours, traveling throughout Europe and Asia, as evidenced by time sheets approved by the PMW.The excessive number of hours charged on paper triggered a review.

During the review, you noted that HR files did not include appropriate identification documents of the four additional staff.When you requested passport copies for identification, all four individuals resigned.Soon thereafter, the PMW quit as well.A full-scale investigation revealed three out of the four additional hires did not exist.The PMW had created fake resumes and forged signatures on contracts, timesheets, and resignation letters.The fourth was related to the PMW and had worked with him to compensate for the three phantom employees. This resulted in more than $1.2 million in payments over a year and a half.It was subsequently discovered that the PMW also operated under a false identity. Each ghost employee was paid through the chain of job agencies and directly into bank accounts registered and managed by the PMW.This resulted in more than $1.2 million in payments over a year and a half.

XYZ company outsources its IT functions to a third-party company known at QT&T Systems. In November of 2019, QT&T IT infrastructure was breached by cyber criminals. Upon further review you noted that the service agreement between XYZ and QT&T had expired in since February 2017. Senior Management is concerned about the quality and safety of the company's information.

Used the above findings/observations to prepare the report and recommendation etc.

Hint: - Audit questionnaires & audit programs should be related to the areas/processes impacted above.