Trans Oil & Gas Corporation (TransOG), a British company, operates four oil refineries in the United

States. Six months ago there was an explosion at one of its refineries that resulted in the death of 2

employees and seriously injured another 10.

The U.S. Occupational Safety and Health Administration (OSHA) found that a cracked valve had led to

the explosion. Further OSHA investigation found that there was a lack of regard for the safety of the

workers on the part of management at the refineries. More specifically the agencys report detailed the

following safety issues that led to the explosion:

1) TransOG did not provide effective safety leadership and has not adequately established worker

safety as a core value across its four refineries.

2) The agency found that there were instances of a lack of operating discipline, toleration for

serious deviations from safe operating practices and apparent complacency toward serious

process safety risks at each refinery.

3) An independent investigation conducted a year previously at two of the companys refineries had

expressed major concerns about weaknesses in safety practices. The report had been distributed

to the refinery managers, but no action was taken to correct the problems.

4) None of the refineries had printed safety manuals and the managers themselves were

responsible for breaches of safety procedures.

5) Finally, the agencys report mentioned a situation where a whistleblower had reported a serious

safety breach a month before the explosion. The whistleblowers report that was presented to his

immediate superior had been ignored. The whistleblower then presented the report to the

refinery manager who told him to talk with his immediate supervisor.

After the explosion, an investigative reporter found the report made to management by the

whistleblower. The investigative reporter then wrote an article stating how TransOG had ignored the

concerns of the whistleblower.

Required:

A. Based on the COSO publication, Internal Control Integrated Framework, state the objectives of

a sound system of internal control.

B. Based on COSO, list and describe the main components of internal control.

C. Explain how conditions at the refineries of TransOG indicate that it did not have a sound system

of internal control.

D. TransOG was further criticized because it was found that its internal auditing function was not

effective. Define the function of internal auditing and explain the characteristics of an effective

internal auditing function.