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Memo On Internal Control Audit Accounting Essay

The reason for this memo is to report the audit aims with related organized audit procedures about the Faculty Professional Expense (FPE) accounts audit as well concerning identify the inner control weakness and recommendations within the FPE process. The current concerns about the Internal Audit department may also be discussed at the end of the memo.

Use of FPE Accounts:

The objectivity of the utilization of FPE accounts is to provide faculty members reimbursements and credits for allowable expenditure paid that are straight related to the quest for faculty member's teaching or research activities. Faculty participants' bookstore acquisitions claims are prepared in another way from non-bookstore buys. The utmost entitled FPE consideration for every member per fiscal calendar year is $3000. The table would like to ensure that FPE accounts are being used as designed; that all expenses being claimed must be legitimate and specifically meet the meaning of allowable bills. Thus, we need to examine the existing control methods and policies in place within the FPE process, then evaluate and file the effectiveness and sufficiency of adjustments over FPE process.

Exhibit 1 provides three comprehensive Audit Goals related to your interior control audit of FPE profile and the related techniques that we would perform to give a high level of confidence.

Exhibit 1- Audit Aims and Procedures

Audit Objectives

Audit Procedures

1. All expense promises (both bookstore acquisitions and non-bookstore purchases) are certified; they are being properly approved and approved to verify for its event/existence.

a)bookstore buys:

- Inquire bookstore professionals and clerks if they are aware of the set of allowable products that faculty people can buy in the bookstore utilizing their FPE bill and whether there are procedures and techniques that guide the bookstore clerks how to deal with the FPE profile.

- Observe if the clerks would refuse to initiate a purchase transaction(s) related to FPE bill when the purchase includes non-allowable products.

Obstacles:Although the bookstore administrator knows the policies and also have knowledge about most professors taking benefit of the FPE account, but it appears that she didn't properly train her staff of what items are allowable for FPE credits and further instructed her personnel to be nice to the faculty users as these transactions would help them to increase store sales, nor want to dissatisfy long term customers. Thus, the integrity of bookstore supervisor is doubtful and the information we get at the bookstore level is likely to be biased.

- Inquire Maggie on the regular monthly generated survey of bookstore purchases using FPE bank account. Whether the statement consists of an automatic control by computer systems that could match the product codes of every purchase to its allowable product rules list for FPE boasts and create an exception record on any unparalleled items. If automatic handles do not exist, then verify whether manual handles are in destination to verify allowable product rules for promises.

- Inquire Maggie on product rules for any non-allowable product buys using FPE accounts and send an invoice to the faculty people for any non-legitimate promises.

b)Non-bookstore purchases

- Inquire relevant Office heads on the normal practices of approving faculty member's says.

-Interview with Team at once their knowing of the FPE guidelines that they must be experienced with this is of allowable expenses.

Obstacles:The Section head's answers to our questions may be biased if using the FPE makes up about personal benefits is a normal practice for the faculty customers and this approving these kinds of expenditures are suitable for the almost all of the Department mind.

- Randomly obtain copies of approved charge claim varieties and ensure that claims include backed documents such as types of buys, relevant receipt, and evidence of agreement by their Team heads.

- Consider randomly examining the large amount or usual claims and verify its appropriateness. For example, business furniture purchased could be confirmed by checking to see if the furniture is situated at the office of the faculty member; Membership fees in professional systems could be verified by checking out if that the professional physiques are related to the house faculty where that faculty member belongs to.

-Obstacles:Some costs may be harder to verify. For instance, travel or travel related expenses and laptop could be stated principal for personal use.

2. Control buttons are adequate to ensure that balance of FPE accounts are appropriate and they should be reconciled with reimbursements made to bookstore and/or faculty associates.

- Inquire Maggie on her procedures about the monthly reconciliation of FPE accounts. In the event of discrepancy is available, inquire about her follow up procedures to correct the discrepancy.

- Randomly select the completed reconciliations done by Maggie and study if they are initialed by Darlene.

- Check to ensure that no credit amounts exist for those FPE accounts (i. e. faculty customers could not use their FPE take into account more than $3000 per fiscal time. )

- Check to ensure that at year end (Apr 30), all staying balances of FPE accounts are used in the Scholarship or grant Trust Fund either automatically or physically. (i. e. FPE balances should be zero at every year end)

3. Management regulations are in place that the FPE programs are being effectively managed and watched.

- Inquire The Man Resource Department on control techniques over termination of faculty customers. The lists of faculty members should be complete or more thus far. Inquire HR department staff if they would spot the Financial Service Department immediately after terminating any faculty member in order that they could terminate the FPE accounts from the terminated faculty member over a well-timed basis.

- Determine if Financial Service would validate with HR division for a fresh faculty member when setting up a new FPE account associated start member.

- Ensure that the FPE program has been monitored because of its effectiveness on a continuing basis and any major changes should be offered/ reviewed with the plank.

Current Control Weakness

The current control environment and basic control over the FPE accounts are considered to be very poor due mainly to the lack of control methods and policies set up in the bookstore level, poor quality of review/procedures before approving receipts by Team heads and lack of independent check/verification of approvals created by department mind including insufficient segregation of duties in the Financial Service Office.

Exhibits 2 determined these significant interior control weaknesses within the FPE process, described the implications of each weakness as well as recommendations for improvement.

Exhibit 2- Control Weakness, Implication and Recommendation

Weakness

Implication

Recommendation

1. Either no well established procedures and procedures regarding the use of FPE take into account bookstore purchases in place for manager and staff to be followedorPolicies and Methods are present but Royola Berterson, Bookstore manager didn't follow and didn't instruct her staff to follow. Instead bookstore administrator instructed the personnel to be courteous and helpful to faculty members because they're long-term customers and do not want to lose them and therefore doesn't really care and attention of what allowable acquisitions to expense against FPE profile.

e. g. Brian Ross (professor) bought clothes, computer for personal use at home. This evidently shows the staff members credited FPE account for clothes bought at bookstore. Either it's possible that the bookstore personnel doesn't have the list for allowable expenditure under FPE which they must have or if indeed they have the list they are not pursuing it.

Most professors take benefit of the Bookstore for a number of purchases. These purchases included the non-allowable expenses which were not supposed to be charged resistant to the FPE accounts, resulting in misuse of the FPE accounts for the bookstore purchases.

-Establish clear and enforceable guidelines and strategies at the bookstore to ensure that FPE accounts may only be used against allowable expenditure.

-Implement an computerized system at sales terminal that would read the product code and match those to the pre-authorized categories of product code (i. e. catalogs, machines), so that non-allowable purchase such as clothing from the bookstore using the FPE accounts could be automatically turned down.

-Book store clerks should confirm the identity of the faculty people before crediting the FPE account to prevent the misuse of lost credit cards.

-Consider employing another bookstore administrator since Royola Perterson's integrity is questionable

2. Poor quality of review of approvals for non-bookstore buys by various Department heads.

No strategies of how to review the attached receipts of non-bookstore buys to check on if those expenses are allowed to be deducted under FPE bill or not. No types of procedures to check on if those non-bookstore buys were used for office or personal goal.

e. g. Brian Ross (teacher) plan to travel for business and holiday purpose- price related to business purpose and non business goal needs to be segregated

Misuse of FPE bank account can cause an increase of FPE expenditures. Faculty users can claim reimbursements for sale of items for personal use by providing those receipts. Faculty members can claim for items not allowable under non-bookstore buys due to lack of control types of procedures. FPE expenditure can be maximum of $3000*195 faculty users= $585, 000.

Faculty members will be more willing to deceive/ say unallowable expenditures if mistakes go undetected.

- Require all department managers to examine all the receipts submitted by faculty people to check whether it's an allowable expense to be reimbursed to employees for non-bookstore purchases.

- Have to check the particular date on the receipt published by faculty users for allowable reimbursements to see if the expense incurred is in today's 12 months for cutoff.

-Need to check if non-bookstore buys/expenses were only for the intended purpose of office/university advantage (not personal gain)- to segregate the personal expense from office price (e. g. Travel charge related to business and personal use- to reimburse business related travel expense only)

-Check for prior year's receipts posted by those faculty members who are located to claim unallowable expense by giving receipts to bill back those volumes.

3. Insufficient 3rd party check in the Financial Service Office of the receipts published by different office heads for its accuracy and trustworthiness if it's an allowable expense that is being said for reimbursement as Maggie just debits the trouble profile and initiates a cheque requisition for repayment to the faculty participants. Maggie shouldn't do both reconciliation and writing cheques at the same time, which clearly implies lack of segregation of tasks.

Intentional/ unintentional mistakes created by divisional heads is going undetected.

This will lead to reimbursing volumes that shouldn't have been which escalates the expense under "FPE bill" which often would have been transferred to a "Scholarship Trust Fund".

Faculty members will be more inclined to deceive/state unallowable expenses if problems go undetected. Scam might occur as Maggie may easily make alterations at the year-end if the total university account submitting related to FPE is not equal to the total amount relieved from the faculty FPE accounts.

-Requires Financial department to check for many promises/receipts that are being claimed to confirm if it's an allowable expenditure under FPE consideration before initiating a cheque requisition for payment to the faculty member.

-Hire a fresh worker in financial team to check on all the receipts initialized by department heads.

-Duties of reconciliation and writing cheques should be segregated by selecting a new worker.

Current concerns about the Internal Audit department

Structure- related

  • Lack of independence as there is no direct demonstration/reporting to the Board at their quarterly conferences.

Responsibility- related

    • Nature of job obligations- Internal auditor working/updating staff in the financial services during vacation trips violates freedom issues which is not a part of responsibility of an internal auditor.

 

  • Internal auditors should not prepare bank reconciliation for bank or investment company accounts.

 

 

  • Independence rules will be violated if interior auditor helps Vice-president of financial services.

 

Recommendations:

    • Need to present/record findings, results and issues right to Panel of Governors at quarterly meetings rather than reporting it to VP to avoid self-reliance issues.

 

  • When employees in financial service section goes on getaway there should be employees within the financial service section to cover on their behalf and they should be paid overtime to provide a motivation to them. Only one financial staff should be permitted to use long planned holiday at a time which may be reserved by employees well beforehand. Also, work done by the employee replacing the worker on holiday should be dual checked by another person for its exactness.

 

 

  • Duty of bank reconciliation for everyone standard bank accounts should be segregated so that worker responsible for lender reconciliation is not accountable for other accounting section work (i. e. A/P or A/R department) to have proper segregation of tasks.

 

 

  • Internal auditor shouldn't assist Vice-president of financial services to remain independent as inside auditor will be auditing the work of vice chief executive, in case if internal auditor does assist Vice-president, it should be plainly disclosed in interior auditor's survey that is offered to exterior auditor.

 

Conclusion

Bloomington University does not have effective controls procedures set up for use of FPE profile. Evidences have been found to demonstrate the misuse of FPE account by faculty members because of insufficient review by bookstore supervisor, department mind and financial team to allow reimbursing all says. We recommend the Board to immediately take action to improve its control weaknesses in the FPE process. A list of our recommendations is provided in display 2. An alternative solution way is always to eliminate the use of FPE accounts, because the integrity of FPE program appears to be very doubtful. The procedures to replace the FPE accounts could be as implemented. For book-store buys and non-book store purchases, different section should maintain location to order/buy with respect to faculty people. Faculty associates can just place an order compared to that separate department with their needs to carry out their job which division will automatically look after all allowable buys to be produced.

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