Oxycare Manufacturing Inc. focuses on providing medical supplies, particularly for patients with complications of lungs, heart, severe respiratory diseases and those who were infected with COVID-19. It was established in 2010, located in Paseo del Congreso Malolos Bulacan, and incorporated by Ms. Yanny Carlos.

Ms. Carlos, the Chief Executive Officer, cannot be reached by her team for a month now. However, she asked Ms. Acy Anne Curtis, the sales manager, before she left to propose a project that would give the incorporation a competitive advantage over other incorporations in line with the healthcare industry. With the instruction given by the CEO, Ms. Acy, proposes a broader project that could raise the company's profit considering the intense competition resulting from the pandemic and the many new manufacturing businesses that have emerged in the field of medical equipment. Some of these businesses include selling nebulizers, inhalers, and other remedies that support the respiratory system. Ms. Acy Curtis proposed producing oxygen tanks, more precisely, compressed medical oxygen. Ms. Curtis and its team sought the advice of mechanical and chemical engineers regarding the production process before they could successfully carry out the project. She questioned how the plant's design ought to be and how much time would be required to complete the plant on the next day at work, Ms. Acy set up a meeting with the company's chief financial officer, Ms. Helsea De Chavez, to determine whether there were adequate funds for the company to carry out the project.

The scope of the project is to produce and provide supplemental oxygen tanks in the whole region 3 with a timeline of one year. As discussed by Ms. Acy, their incorporation's sales in the five previous years were high compared to their target, therefore, launching a new product would not be as risky as it is. Ms. Acy and her team allocated a budget of 10,000,000 and an additional 5,000,000 for project control support. Meanwhile, Ms. Acy discovered that her mother has a chronic disease that should be treated immediately. She got stressed and pressured about where to get the money for the treatment of her mother, and that was when she decided to behave against her ethics. Thus, she told Ms. Clarisse Sy, the accountant, about her urgent situation as well as what she is about to do with the half of the amount allocated for the project. Ms. Acy decided to have low-cost materials and decrease the number of oxygen tanks that will be produced so that the budget would still be enough to execute the project. Hence, she would also have enough portion of it for the treatment of her mother.

Ms. Clarisse Sy sympathizes with the situation that Ms. Acy is dealing with, given the fact that she and Ms. Acy are close friends. As a result, Ms. Clarisse emphatically did not tell the CFO or anyone from the management about it. With that, Ms. Clarisse did not put the exact amount in the financial statement to help Ms. Acy. Additionally, Ms. Acy, who oversaw the project, allocated 7,500,000 to the mechanical and chemical engineers so they could manufacture the oxygen. As a result, the demand was not met, and the quality of oxygen tanks was inferior. The project is far from being a success. Thereby, the internal auditor, Ms. Karen Accla was able to recognize the project's improper management and learn about Ms. Acy and Ms. Clarisse's illegal actions. However, Ms. Karen still issued an audit report stating that the company's financial statements are fairly and appropriately presented, free of any identified exceptions, and in accordance with generally accepted accounting principles (GAAP) because she was aware of Ms. Acy's situation. Ms. Helsea De Chavez, CFO, examined the project's progress and reviewed the reports regarding it because it was still ongoing. Ms. Helsea concluded that its objectives had not been met and that there were irregularities occurring. Therefore, she was forced to stop the project.

1. What are the audit procedures to implement in the situation?

2. Proposed a solution for the weaknesses of the project.