You have been hired as the new Chief Audit Executive (CAE) for the company Palm Trees Resorts Limited, a large company that provides administration for ten holiday resorts reservations. The organization has never had an internal audit department and have relied primarily on their external auditors to perform basic control testing.

Perform an audit of the following:

A comprehensive internal audit engagement to test the adequacy and effectiveness of the system of internal controls relating to the computerized central reservation system.

The previous internal auditors have documented the following systems description for Palm Trees Resorts Limiteds central reservation system during the planning stage of the previous audit engagement:

• The central reservation system is fully computerized. Reservations are requested via an on-line reservation request on the companys official website. All new customers must first register on the website by providing the following information:
• • First name and surname;
  • ID number;
  • Passport number;
  • Postal address;
  • Contact number; and,
  • Email address.
• A customer code is automatically assigned to all new customers. This code consists of six digits. The first three digits are based on the first three letters of the customers surname and the last three digits are sequentially assigned based on the specific surname. For example: for the first customer with the surname Jones, the code JON001 will be assigned. Should another customer have this surname, his/her code will be JON002. The customer must also select his/her own password.
• When a customer wants to make a reservation request, he/she must login with the assigned customer code and chosen password in order to provide the following reservation request information:
  • The chosen holiday resort;
  • The proposed arrival and departures dates;
• The type of accommodation (two-bed-unit, four-bed-unit, six-bed-unit or camping site); and
• o The number of people.
• Palm Trees Resorts Limited maintains a policy that the number of people staying in a unit may not exceed the number of beds in that unit. A unit can be a stand at a camping site, a chalet, flat or a house. Camping sites can accommodate no more than six persons per stand. A minimum stay of two nights applies to all weekend reservations (i.e., both the Friday night and the Saturday night must be booked). High-season rates are applicable to all weekends, school holidays and public holidays. For all other nights low-season rates apply. All applicable rates are quoted per unit and are available on the website.
• Once the reservation has been approved, a reservation number is assigned based on a resort code system. For example, a reservation made for the first resort will be 01-00001. An invoice is automatically emailed to the customer after the receipt of a valid reservation request. Invoices indicate the details of the customer, the chosen holiday resort, the type of accommodation as well as the total invoice amount which is calculated as follows: price per unit x number of days.
• Full payment for the reservation is required within five working days of the booking and can be made in one of two ways:
• • Direct bank deposit; or
  • Internet banking.
• A final confirmed reservation document is emailed to the customer in portable document file (pdf) format as soon as payment has been received.

Task #1

Discuss the specific application controls that should be present in Palm Trees Resorts Limiteds online central reservation system to ensure the integrity of accommodation reservation activities with reference to the:

1. Registration of new customers;

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2. Requesting and processing of a reservation; and

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3. Invoicing and final confirmation of a reservation.

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TASK 2

1. Discuss, giving your reasoning, whether the following audit techniques can be applied to the audit of Palm Trees Resorts Limiteds central reservation system: a Controlled processing; b Flowchart verification; and c Review of printouts.

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2. Discuss how error reports and exception reports can be used as a tool by the internal auditor when conducting the review of Palm Trees Resorts Limiteds central reservation system. Your answer should also include definitions of these two types of reports as well as appropriate examples of both from the case study.

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3. Prepare an engagement audit program, listing the engagement procedures you would follow when using a test data approach to verify that:

• Palm Trees Resorts Limiteds central reservation system correctly registers a new customer; and,
• Palm Trees Resorts Limiteds central reservation system processes reservation requests correctly.
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