Memo On Internal Control Audit Accounting Essay

Memo On Internal Control Audit write up EssayThe purpose of this memo is to document the audit objectives with connect think audit procedures regarding the Faculty Professional Expense (FPE) handbills audit as s sound up as to identify the internal secure weakness and recommendations within the FPE process. The current concerns nigh the Internal Audit subdivision bequeathing also be discussed at the end of this memo.Use of FPE AccountsThe objectivity of the wasting disease of FPE accounts is to provide susceptibility members reimbursements and credits for tout ensembleowable disbursement paid that ar flat connect to the pursuit of talent members t for to each(prenominal) one oneing or research activities. Faculty members bookstall acquires fills ar processed variously from non- bookstall purchases. The maximum entitled FPE account for each member per fiscal course is $3000. The board would want to witness that all FPE accounts argon world subroutined as intended that all expenditures being claimed must be legitimate and specifically meet the definition of permissible put downs. Thus, we need to examine the current ascendance procedures and policies in place within the FPE process, then evaluate and document the persuasiveness and sufficiency of realizes over FPE process. demo 1 provides three detailed Audit Objectives related to our internal come across audit of FPE account and the related procedures that we would perform to provide a uplifted level of assurance.Exhibit 1- Audit Objectives and ProceduresAudit ObjectivesAudit Procedures1. All get down claims (both bookstall purchases and non-book broth purchases) are certified that they are being decently certain and authorize to verify for its occurrence/existence.a)bookstore purchases wonder bookstore music directors and clerks whether they are aware of the list of permissible harvest-feasts that staff members dismiss purchase in the bookstore using their FPE ac count and whether in that location are policies and procedures that guide the bookstore clerks on how to deal with the FPE account. Observe whether the clerks would refuse to initiate a purchase trans fulfill(s) related to FPE account when the purchase consists of non-allowable products.ObstaclesAlthough the bookstore double-decker is aware of the policies and bemuse knowledge about most professors taking advantage of the FPE account, but it seems that she didnt properly train her round of what items are allowable for FPE credits and further instructed her staff to be nice to the cogency members as these transactions would help them to development store sales and do non want to dissatisfy keen-sighted term customers. Thus, the integrity of bookstore omnibus is questionable and the information we jerk off at the bookstore level is likely to be aslant. Inquire Maggie on the monthly generated report of bookstore purchases using FPE account. Whether the report consists of an self-acting control by computers that would match the product figures of each purchase to its allowable product codes list for FPE claims and generate an exception report on any ridiculous items. If automatic controls do not exist, then examine whether manual controls are in place to confirm allowable product codes for claims. Inquire Maggie on product codes for any non-allowable product purchases using FPE accounts and send an invoice to the faculty members for any non-legitimate claims.b)Non-bookstore purchases Inquire relevant Department heads on their normal practices of grace faculty members claims.Interview with Department head on their awareness of the FPE policies that they should be experienced with the definition of allowable get downs.ObstaclesThe Department heads answers to our questions may be biased if using the FPE accounts for ad hominem benefits is a normal practice for the faculty members and that commendation these types of expenditures are acceptable for t he most of the Department heads. Randomly obtain copies of approved spending claim forms and ensure that all claims come with supported documents such as types of purchases, relevant receipt, and evidence of approval by their Department heads. treat randomly examining the large amount or usual claims and verify its appropriateness. For example, chest furniture purchased could be verified by checking to see if the furniture is regain at the moorage of the faculty member Membership fees in victor bodies could be verified by checking if that the professional bodies are related to the class faculty where that faculty member belongs to.ObstaclesSome expenditure may be harder to verify. For example, travel or travel related expenses and laptop could be claimed simple for personal use.2. Controls are adequate to ensure that balance of FPE accounts are veracious and that they should be reconciled with reimbursements made to bookstore and/or faculty members. Inquire Maggie on her p rocedures regarding the monthly satisfaction of FPE accounts. In the event of discrepancy is found, require about her follow up procedures to correct the discrepancy. Randomly select the spotless reconciliations done by Maggie and examine whether they are initialed by Darlene. Check to ensure that no credit balances exist for all FPE accounts (i.e. faculty members could not use their FPE account for more than $3000 per fiscal year.) Check to ensure that at year end (April 30), all remaining balances of FPE accounts are transferred to the Scholarship Trust livestock either automatically or manually. (i.e. FPE balances should be zero at each year end)3. Management policies are in place that the FPE classs are being effectively managed and monitored. Inquire The Human Resource Department on control procedures over termination of faculty members. That the lists of faculty members should be complete and up to insure. Inquire HR section staff whether they would notice the monetar y military service Department immediately after terminating any faculty member so that they could terminate the FPE account associated with the terminated faculty member on a timely basis. Check to see if Financial Service would verify with HR segment for a new faculty member when setting up a new FPE account associated with that member. Ensure that the FPE program is being monitored for its effectiveness on a continuous basis and any major changes should be presented/ discussed with the board.Current Control WeaknessThe current control environment and popular control over the FPE accounts are considered to be very weak mainly due to the neglect of control procedures and policies in place in the bookstore level, poor quality of suss out/procedures before approving profit by Department heads and lack of independent check/verification of approvals made by department heads including lack of segregation of duties in the Financial Service Department.Exhibits 2 identified these sig nifi freightert internal control weaknesses within the FPE process, described the implications of each weakness as well as recommendations for improvement.Exhibit 2- Control Weakness, tax write-off and RecommendationWeaknessImplicationRecommendation1. Either no well established procedures and policies regarding the use of FPE account for bookstore purchases in place for manager and staff to be followedorPolicies and Procedures exist but Royola Berterson, bookstall manager did not follow and didnt instruct her staff to follow. Instead bookstore manager instructed the staff to be courteous and helpful to faculty members because they are semipermanent customers and do not want to lose them and hence doesnt really caveat of what allowable purchases to expense against FPE account.e.g. Brian Ross (professor) bought clothes, computer for personal use at home. This clearly shows the staff members credited FPE account for clothes bought at bookstore. Either it is thinkable that the book store staff does not deport the list for allowable expense down the stairs FPE which they should have or if they have the list then they are just not following it.Most professors take advantage of the Bookstore for a number of purchases. These purchases included the non-allowable expenditures that were not supposed to be supercharged against the FPE accounts, resulting in convolute of the FPE accounts for the bookstore purchases.-Establish clear and enforceable policies and procedures at the bookstore to ensure that FPE accounts may only be used against allowable expenditure.-Implement an automatic system at sales terminal that would read the product code and match them to the pre-authorized categories of product code (i.e. books, equipments), so that non-allowable purchase such as clothing from the bookstore using the FPE account could be automatically rejected.-Book store clerks should confirm the identity of the faculty members before crediting the FPE account to prevent the misuse of lost cards.-Consider hiring another bookstore manager since Royola Pertersons integrity is questionable2. sad quality of review of approvals for non-bookstore purchases by various Department heads.No procedures of how to review the attached receipts of non-bookstore purchases to check if those expenses are allowed to be deducted under FPE account or not. No procedures to check if those non-bookstore purchases were used for office or personal purpose.e.g. Brian Ross (professor) plan to travel for line of merchandise and holiday purpose- expense related to tune purpose and non business purpose needs to be segregated maltreatment of FPE account can result in an increase of FPE expenses. Faculty members can claim reimbursements for purchase of items for personal use by providing those receipts. Faculty members can claim for items not allowable under non-bookstore purchases due to lack of control procedures. FPE expense can be maximum of $3000*195 faculty members= $585,000.F aculty members entrust be more inclined to deceive/ claim unallowable expenses if errors go undetected. consider all division managers to review all the receipts submitted by faculty members to check if its an allowable expense to be reimbursed to employees for non-bookstore purchases. Need to check the date on the receipt submitted by faculty members for allowable reimbursements to see if the expense incurred is in the current year for cutoff.-Need to check if non-bookstore purchases/expenses were solely for the purpose of office/university benefit (not personal benefit)- to segregate the personal expense from office expense (e.g. Travel expense related to business and personal use- to reimburse business related travel expense only)-Check for previous years receipts submitted by those faculty members who are found to claim unallowable expense by providing receipts to charge back those amounts.3. Lack of independent check in the Financial Service Department of the receipts submitt ed by different department heads for its accuracy and reliability if its an allowable expense that is being claimed for reimbursement as Maggie just debits the expense account and initiates a cheque require for payment to the faculty members. Maggie shouldnt do both reconciliation and create verbally cheques at the same time, which clearly indicates lack of segregation of duties.Intentional/ unintentional errors made by divisional heads will go undetected.This will result in reimbursing amounts that shouldnt have been which increases the expense under FPE account which otherwise would have been transferred to a Scholarship Trust neckcloth.Faculty members will be more inclined to deceive/claim unallowable expenses if errors go undetected. Fraud may occur as Maggie can easy make adjustments at the year-end if the total university account posting related to FPE is not equal to the amount relieved from the faculty FPE accounts.-Requires Financial department to check for all claims/ receipts that are being claimed to confirm if its an allowable expense under FPE account before initiating a cheque requisition for payment to the faculty member.-Hire a new employee in financial department to check all the receipts initialized by department heads.-Duties of reconciliation and writing cheques should be segregated by hiring a new employee.Current concerns about the Internal Audit departmentStructure- relatedLack of license as there is no direct presentation/reporting to the Board at their quarterly meetings.Responsibility- relatedNature of job duties- Internal auditor workings/replacing staff in the financial service during vacations violates independence issues and is not a part of responsibility of an internal auditor. Internal auditors should not falsify depository financial institution reconciliation for bank accounts. Independence rules will be violate if internal auditor attend tos Vice-president of financial services.RecommendationsNeed to present/repor t findings, results and issues directly to Board of Governors at quarterly meetings rather than reporting it to VP to avoid independence issues.When employees in financial service department goes on vacation there should be employees within the financial service department to cover for them and they should be paid overtime to give an incentive to them. Only one financial employee should be permitted to take long planned vacation at a time which can be reserved by employees well in advance. Additionally, work done by the employee replacing the employee on vacation should be double checked by someone else for its accuracy. Duty of bank reconciliation for all bank accounts should be segregated so that employee responsible for bank reconciliation is not responsible for any other accounting department work (i.e. A/P or A/R department) to have proper segregation of duties.Internal auditor shouldnt assist Vice-president of financial services to remain independent as internal auditor will b e auditing the work of vice president, in case if internal auditor does assist Vice-president, it should be clearly disclosed in internal auditors report that is presented to remote auditor.ConclusionBloomington University does not have effective controls procedures in place for use of FPE account. Evidences have been found to prove the misuse of FPE account by faculty members because of lack of review by bookstore manager, department heads and financial department to allow reimbursing all claims. We recommend the Board to immediately take action to improve its control weaknesses over the FPE process. A list of our recommendations is provided in let on 2. An alternative way would be to eliminate the use of FPE account, because the integrity of FPE program seems to be very questionable. The procedures to replace the FPE accounts could be as followed. For book-store purchases and non-book store purchases, different department should be in place to order/buy on behalf of faculty memb ers. Faculty members can just place an order to that recognise department of their needs to carry out their job and that department will automatically take care of all allowable purchases to be made.