This case is designed like the ones in the chapter. Your assignment is to write the “audit approach” portion of the case organized around these sections: Objective. Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements.
Control. Write a brief explanation of desirable controls, missing controls, and especially the types of “deviations” that might arise from the situation described in the case.
Tests of controls. Write some audit procedures for getting evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform; go to the next section. A “procedure” should instruct someone about the source( s) of evidence to tap and the work to do.
Audit of balance. Write some procedures for getting evidence about the existence, completeness, valuation or allocation, or rights and obligations assertions identified in your objective section.
Discovery summary. Write a short statement about the discovery you expect to accomplish with your procedures.
A. Doe, IT application manager for The Coffee Company, signed a consulting services agreement with Fictitious Consulting Company (FCC). Doe was required to obtain writ-ten approval of the contract from a supervisor but forged the supervisor’s signature. More than 100 invoices came in, which were approved with Doe’s initials. Even though Doe’s approval authority was only $ 5,000, many of the invoices were for more than $ 40,000.
FCC was not registered in the state or listed in telephone directories. The phone number was for a cell phone registered to Doe and the mailing address was a post office box. When Doe’s supervisor asked to meet the FCC consultants, Doe was evasive, saying they “had just left” or “they were working away from the office.” Ultimately, Doe told her supervisor that she had dismissed FCC, but she simply moved the charges to capital accounts that the supervisor did not monitor.
The Coffee Co. paid more than $ 3.7 million to FCC between December 1999 and August 2000. (Source: M. Atkinson and M. Biliske, “Grounds for Dismissal,” Internal Auditor, February 2005.)
The Coffee Co. paid more than $ 3.7 million to FCC between December 1999 and August 2000. (Source: M. Atkinson and M. Biliske, “Grounds for Dismissal,” Internal Auditor, February 2005.)