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Scenario:

Child Care is a local non-profit organization solely managed by Mr. Mohammed. Before 10 years, his family contributed property and savings to establish this non-profit organization which aims to provide free education, food, and shelter to orphans in the country. The source of income is from donations and charities which Mohammed can generate from his family members. Mohammeds educational qualification is an engineering graduate and therefore he has no knowledge of managing a non-profit organization. Mohammeds lack of accounting and finance knowledge has created liquidity issues to the organization. In addition, there is no proper checks and balances done on the accounts since its inception. The employee base consists of Mr. Gopi, Ms. Sara, and Mr. Ahmed. Gopi looks for housekeeping, cleaning, and cooking for the shelter home. Sara is the cashier of the firm. Sara manages financing of the non-profit and Ahmed looks for the administrative aspect of the firm. All these three employees are full time employed but are underpaid as compared to the private sector. However, since few years, the number of orphans has increased in the organization and therefore there is negative cash balances for few years.

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The details of the closing balances of the net assets are as follows: (all figures in Omani rial)

	2018	2019	2020
Unrestricted	(44,000)	(67,000)	(91,000)
Temporary restricted	(30,000)	(57,000)	(67,000)
Permanently restricted	100,000	100,000	100,000

There is an immediate need to recruit additional three full time employees, out of which, two employees are required in the housekeeping whereas one employee is required in the administration of the non-profit. Mohammed is facing criticism from his existing staff, which are complaining of lower salary and lengthy working hours. Mohammed is also facing tough challenge in generating funds from charities and donations as increased expenses of the nonprofit firm is worrying him. Major donors are also not happy with the type of services provided to the key stakeholder (orphans) of the non-profit firm. Neighbouring society houses have appreciated the charity work done by Child Care. Thuriya, a local bank manager has approached Mohammed and is willing to provide a bank loan for covering negative cash balances. Thuriya also recommends Mohammed to cut down unnecessary expenses like leisure, stationery, and travel costs. However, Mohammed will have to keep the noncurrent assets of Child Care as mortgage to avail the bank loan.

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Ahmed is of the opinion that the non-profit firm should expand its management board and include major donors as trustee. This will increase accountability and transparency in the non-profit organization. However, Sara is totally against this option, as new trustees will create additional confusion and operational challenges to existing management (Mohammed) and to the non-profit firm. Gopi is of the opinion to close this non-profit firm as increased negative cash balances will create serious liquidity issues in near future. Mohammeds ultimate objective is to generate profits from the non-profit firm so that he can use the additional income for other business needs.

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Mohammed has approached you and asked some generic and specific questions which could help fix the mentioned issues.

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Requirement: a) Do you recommend an internal auditor for Child Care? If yes, what are the immediate issues to be addressed by the internal auditor? (LO 7.2) (550 words) . b) What are the reflections from the above case study? Write briefly in terms of the auditing and regulatory framework. (LO 7.3) (550 words)