Internal Auditors Report On Goodner Brothers

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11th May 2017 Information Technology Reference this

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Internal Auditor’s Report on Goodner Brothers Inc

1.0 Internal Control is a system of checking balances and it is designed to provide a reasonable assurance that assets are protected. Then, accounting data must be accurate according to the information of accounting. Operations should be efficient and also law and policies are compiled with. For this company (Goodners Brothers), We noted that weaknesses in internal control of this company make employee of this company, Woody Robinson was in serious financial trouble. So, the employee took advantage of his company’s weak internal controls by stealing a large of inventory, which employee then sold to other parties. We identify that the act of Woody Robinson was a form of major fraud. However, We have stated below that the main key internal control objectives for Goodner’s Huntington sales office. We also stated that the key internal control weaknesses and its implication that were evident in Huntington unit’s operations and control policies or procedures to alleviate the key internal control weaknesses. On the other hand, We also stated that other parties besides Woody Robinson who partially responsible for inventory losses in the company together with few fraud risk management strategy that could be implemented by this company.

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2.0 From this case, we have found that Sales Representative(Woody Robinson) in Goodner’s Huntington sales office took as an advantage of Goodner Brothers Inc weak in internal controls by stealing a large amount of inventory. So, We believe that this are the following key internal control objectives should be maintain in Goodner’s Huntington sales office. Firstly, Sales office’s staff need to ensure that the every transaction should have a proper authorization to prevent this kind of fraudulent use of resources. For example, Sales office’s staff should get the approval from the management or manager for very transactions. By apply this first objective, the shortages of inventory can be minimized and makes all the transactions going very smoothly. Secondly, Physical safeguards and security should have been the key internal control objectives. For example, sales office’s staff need to ensure that access to physical assets and information systems need to be controlled and properly restricted to authorized personnel. On the other hand, validity also should have been the key internal control objective. So, sales office’s staff need to ensure that all recorded transactions fairly need to be represent the economics events that actually occurred and also should be executed in accordance with management’s general authorization. Next, Error in handling also should have been the key internal control objective. So, sales office’s staff need to ensure that whatever errors detected at any stage of processing receive prompt corrective action and also should reported to the appropriate level of management. Next, Completeness also should have been the key internal control objective. So, sales office’s staff need to ensure that no valid transactions should have been omitted from the inventory records. This five objectives that we stated overall can minimum the bad debts. Furthermore, good control can minimized or maintain of the inventory records.

2.1 On the other hand, we have identify the key internal control weaknesses and that were evident in the Huntington unit’s operations. Firstly, there is lack of sufficient workers in the company to perform the much needed various task because we identify that the company have 14 sales outlets with skeletal crews of 10 to 12 employees. Then, a sales manager supervised the other employees at each outlet and also working a sales district. The remaining staff typically included two sales representative. Furthermore, a receptionist who having double job as a secretary and also as a bookkeeper and seven employees who delivering the tires and working in the unit’s inventory warehouse. So, this shows clearly that one of the major key internal control weaknesses is insufficient of workers is working in the company. Next, another key internal control weaknesses in the Huntington unit’s operations is the failure to coordinate an up-to-date accounting system used to provide an actual or accurate account of inventory because we was identify that each goodner sales outlet maintaining a computerized accounting system. These systems also typically made according to a standardized format and not develop for specialized for the company. These systems is ready made. Beside this, we also found that the unit’s sales manager and two representatives had unrestricted access to the accounting system. So, since the large volume of sales and purchase transactions always swamped the bookkeeper . Then, sales representatives also frequently entered transactions directly into system. Furthermore, another key internal control weaknesses in the Huntington unit’s operations is the lack of security needed to safeguard the assets sold. Company failure to restricted the security. We have identify that the sales representative (Woody Robinson) taking an advantage and routinely stole the inventory and kept the proceeds. Woody Robinson also continuing stole in various ways. In some cases, Woody Robinson charged merchandise that he was sold for his own benefit to the accounts of large volume customers. So, this techniques makes inventory balance in the Huntington facility’s accounting records. We also identify that Woody Robinson charged the customers for merchandise they had not purchase. Goodner’s customers frequently returned tires for various reasons. We found that Woody Robinson completed all the credit memos for sales transactions voided by his customers and at the same time, Woody Robinson not returning the tires to Goodner’s inventory. Then, Woody Robinson also routinely sell some of the tires to other customers for cash. So, because of company lack of security needs to safeguard the assets sold. This makes the quantity of stealing tires made Woody Robinson was increasing very high. Next, another key internal control weaknesses in the Huntington unit’s operations is the company failure to make sure that all the accounting information was correct or not. We have identify that the sales representative themselves routinely accessed, reviewed and updated their customer’s account and also completing purchase orders. Sales orders, credit memos and other accounting document on the timely basis, Furthermore, the sales representative passed all the documents on to the bookkeeper and also use them to enter the transactions directly into the accounting system. We also have identify that sales representative had direct access to the inventory storage areas and during heavy sales periods, sales representative always loaded and delivered customers orders themselves. So, this makes easily errors occurred in the accounting information. So, we have stated those key internal control weaknesses and its implication with the evident in the Huntington unit’s operations.

2.2 This are the following control policies or procedures to alleviate the key internal control weaknesses . Firstly, Proper authorization of transactions. Creating and using budgets is a form of authorization. This makes easier for Huntington unit’s operations. The purchase of goods and services should be requested by one person and approved

by another. Individuals that handle cash should be bonded. Secondly , another policies or procedures is Segregation of duties. This includes assigning different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets. The person collecting cash should not be the person who records the cash receipt. If there is enough staff, a rotation of duties can eliminate employee

manipulation of records or assets. The approval of purchases should not be made by the person who has access to the checks. Furthermore, another policies or procedures is design and use of adequate documents and records to help ensure the proper recording of transactions and events. Sales representative should always pre- numbered checks, receipts and purchase orders should be used and sequence should be accounted. Then, cancelled checks, vouchers, and receipts should be maintained. Voucher packages (invoices, purchase orders and receiving reports) should be cancelled (stamped paid) after payment to prevent duplicate payments. The invoices should be matched to receiving reports and receiving reports should be matched to purchase orders to ensure that sales representative received, ordered and only pay for what we received. At the same time, journals should be kept for all transactions. Next, another policies or procedures is adequate safeguards regarding access to and use of assets and records. Then, access to blank checks, signature plates, and purchase orders should be restricted. Computers should have passwords to access and change information and working area also should be visible to supervisors. However, voided checks should be defaced by tearing the signature line off or writing void on the face of the check and also all voided checks should be maintained. If the company apply all those policies or procedures that we stated. The weaknesses of key internal control will be improved.

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2.3 Furthermore, We also identify that besides Woody Robinson, there is few parties were partially responsible for inventory losses goodners suffered. Customers is one of the parties responsible for inventory losses because when customers complained to Woody Robinson for being charged for merchandise they had not purchased, Woody Robinson usually apologized and corrected their account balances but if some of the customers sometimes paid the illicit charges, so this shows that customers unknowingly helped Woody Robinson sustain his fraudulent scheme. Next, We identify that Felix Garcia, the Huntington sales manager is also one of the parties that responsible for inventory losses because Felix Garcia stated that he was not discussed the customers complaints with Woody Robinson or the sales representative. Normally, when Felix Garcia received a customer complaint, he just simply passed it to the appropriate sales representative and was allowed that individual to deal with the matters. Furthermore, We also found that Felix Garcia maintain a file of customer complaints only because he was told to do so by the previous sales manager whom was replaced three years earlier. So, We found that previous sales manager also partially responsible for inventory losses. Next, Al Hunt is owner of Curcio’ tires and also Woody Robinson’s friend is also one of the parties responsible inventory losses because Al Hunt just continue purchase the tires even though another sales representative told that the company only sold closeout merchandise directly to wholesalers. Al Hunt also know that Woody Robinson was incredibly selling the tires at lower price. This shows that Al Hunt really responsible for inventory losses. We also identify that Al Hunt one of the major parties among the other parties who responsible for inventory losses.

2.4 However, there is a various forms of fraud risk management strategy that could be implemented by Goodners Brothers Inc. One of the fraud risk management strategy is communication and training. So, raising employees’ awareness of their obligations concerning fraud and misconduct control begins with communications and training. While many organisations take an approach, careful planning behind this effort can help send employees a clear message to take their control responsibilities seriously. Secondly, another fraud risk management strategy is audit and monitoring. Because since it is impossible to monitor every fraud and potential misconduct risk, management should develop a comprehensive auditing and monitoring plan that is based on the organization’s fraud risk assessment process. Then, another fraud risk management strategy is employee and third-party due diligence. An important part of an effective fraud and misconduct prevention strategy is using appropriate due diligence in the hiring, retention and promotion of employees, agents, vendors and other third parties. Such due diligence becomes especially important for those employees with authority over the financial reporting process. Furthermore, another fraud risk management is code of conduct. That is actually a well -written code of conduct is one of the most important mechanisms to communicate with employees about acceptable business standards. It sets the organization’s tone on control culture, raises awareness of management’s commitment to integrity and provides the resources to help employees achieve management’s compliance goals. All those fraud risk management strategy that we stated that could implemented by Goodner Brothers Inc.

3.0 Finally, we come with conclusion that the management or the board of this company is mainly responsible for the design of internal control and conveying to staff their internal control responsibilities. Peoples is the one who make internal controls work. Everyone in the company plays an important role. As problems are noted, staffs should be communicated, so that adjustments or corrections can be made. There is few benefits of internal control mainly for employees is actually to help prevent errors and irregularities from occurring. If they do occur, Internal controls will help ensure they are detected in timely manner. By this report, we believed that the board of Goodner Brothers Inc is should be able to overcome the internal control weaknesses. It makes the fraudulent in the company will be reduced and particularly Huntington sales office can be maintained or sustained consistently ranked as Goodner’s second or third most profitable sales outlet.

Internal Auditor’s Report on Goodner Brothers Inc

1.0 Internal Control is a system of checking balances and it is designed to provide a reasonable assurance that assets are protected. Then, accounting data must be accurate according to the information of accounting. Operations should be efficient and also law and policies are compiled with. For this company (Goodners Brothers), We noted that weaknesses in internal control of this company make employee of this company, Woody Robinson was in serious financial trouble. So, the employee took advantage of his company’s weak internal controls by stealing a large of inventory, which employee then sold to other parties. We identify that the act of Woody Robinson was a form of major fraud. However, We have stated below that the main key internal control objectives for Goodner’s Huntington sales office. We also stated that the key internal control weaknesses and its implication that were evident in Huntington unit’s operations and control policies or procedures to alleviate the key internal control weaknesses. On the other hand, We also stated that other parties besides Woody Robinson who partially responsible for inventory losses in the company together with few fraud risk management strategy that could be implemented by this company.

2.0 From this case, we have found that Sales Representative(Woody Robinson) in Goodner’s Huntington sales office took as an advantage of Goodner Brothers Inc weak in internal controls by stealing a large amount of inventory. So, We believe that this are the following key internal control objectives should be maintain in Goodner’s Huntington sales office. Firstly, Sales office’s staff need to ensure that the every transaction should have a proper authorization to prevent this kind of fraudulent use of resources. For example, Sales office’s staff should get the approval from the management or manager for very transactions. By apply this first objective, the shortages of inventory can be minimized and makes all the transactions going very smoothly. Secondly, Physical safeguards and security should have been the key internal control objectives. For example, sales office’s staff need to ensure that access to physical assets and information systems need to be controlled and properly restricted to authorized personnel. On the other hand, validity also should have been the key internal control objective. So, sales office’s staff need to ensure that all recorded transactions fairly need to be represent the economics events that actually occurred and also should be executed in accordance with management’s general authorization. Next, Error in handling also should have been the key internal control objective. So, sales office’s staff need to ensure that whatever errors detected at any stage of processing receive prompt corrective action and also should reported to the appropriate level of management. Next, Completeness also should have been the key internal control objective. So, sales office’s staff need to ensure that no valid transactions should have been omitted from the inventory records. This five objectives that we stated overall can minimum the bad debts. Furthermore, good control can minimized or maintain of the inventory records.

2.1 On the other hand, we have identify the key internal control weaknesses and that were evident in the Huntington unit’s operations. Firstly, there is lack of sufficient workers in the company to perform the much needed various task because we identify that the company have 14 sales outlets with skeletal crews of 10 to 12 employees. Then, a sales manager supervised the other employees at each outlet and also working a sales district. The remaining staff typically included two sales representative. Furthermore, a receptionist who having double job as a secretary and also as a bookkeeper and seven employees who delivering the tires and working in the unit’s inventory warehouse. So, this shows clearly that one of the major key internal control weaknesses is insufficient of workers is working in the company. Next, another key internal control weaknesses in the Huntington unit’s operations is the failure to coordinate an up-to-date accounting system used to provide an actual or accurate account of inventory because we was identify that each goodner sales outlet maintaining a computerized accounting system. These systems also typically made according to a standardized format and not develop for specialized for the company. These systems is ready made. Beside this, we also found that the unit’s sales manager and two representatives had unrestricted access to the accounting system. So, since the large volume of sales and purchase transactions always swamped the bookkeeper . Then, sales representatives also frequently entered transactions directly into system. Furthermore, another key internal control weaknesses in the Huntington unit’s operations is the lack of security needed to safeguard the assets sold. Company failure to restricted the security. We have identify that the sales representative (Woody Robinson) taking an advantage and routinely stole the inventory and kept the proceeds. Woody Robinson also continuing stole in various ways. In some cases, Woody Robinson charged merchandise that he was sold for his own benefit to the accounts of large volume customers. So, this techniques makes inventory balance in the Huntington facility’s accounting records. We also identify that Woody Robinson charged the customers for merchandise they had not purchase. Goodner’s customers frequently returned tires for various reasons. We found that Woody Robinson completed all the credit memos for sales transactions voided by his customers and at the same time, Woody Robinson not returning the tires to Goodner’s inventory. Then, Woody Robinson also routinely sell some of the tires to other customers for cash. So, because of company lack of security needs to safeguard the assets sold. This makes the quantity of stealing tires made Woody Robinson was increasing very high. Next, another key internal control weaknesses in the Huntington unit’s operations is the company failure to make sure that all the accounting information was correct or not. We have identify that the sales representative themselves routinely accessed, reviewed and updated their customer’s account and also completing purchase orders. Sales orders, credit memos and other accounting document on the timely basis, Furthermore, the sales representative passed all the documents on to the bookkeeper and also use them to enter the transactions directly into the accounting system. We also have identify that sales representative had direct access to the inventory storage areas and during heavy sales periods, sales representative always loaded and delivered customers orders themselves. So, this makes easily errors occurred in the accounting information. So, we have stated those key internal control weaknesses and its implication with the evident in the Huntington unit’s operations.

2.2 This are the following control policies or procedures to alleviate the key internal control weaknesses . Firstly, Proper authorization of transactions. Creating and using budgets is a form of authorization. This makes easier for Huntington unit’s operations. The purchase of goods and services should be requested by one person and approved

by another. Individuals that handle cash should be bonded. Secondly , another policies or procedures is Segregation of duties. This includes assigning different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets. The person collecting cash should not be the person who records the cash receipt. If there is enough staff, a rotation of duties can eliminate employee

manipulation of records or assets. The approval of purchases should not be made by the person who has access to the checks. Furthermore, another policies or procedures is design and use of adequate documents and records to help ensure the proper recording of transactions and events. Sales representative should always pre- numbered checks, receipts and purchase orders should be used and sequence should be accounted. Then, cancelled checks, vouchers, and receipts should be maintained. Voucher packages (invoices, purchase orders and receiving reports) should be cancelled (stamped paid) after payment to prevent duplicate payments. The invoices should be matched to receiving reports and receiving reports should be matched to purchase orders to ensure that sales representative received, ordered and only pay for what we received. At the same time, journals should be kept for all transactions. Next, another policies or procedures is adequate safeguards regarding access to and use of assets and records. Then, access to blank checks, signature plates, and purchase orders should be restricted. Computers should have passwords to access and change information and working area also should be visible to supervisors. However, voided checks should be defaced by tearing the signature line off or writing void on the face of the check and also all voided checks should be maintained. If the company apply all those policies or procedures that we stated. The weaknesses of key internal control will be improved.

2.3 Furthermore, We also identify that besides Woody Robinson, there is few parties were partially responsible for inventory losses goodners suffered. Customers is one of the parties responsible for inventory losses because when customers complained to Woody Robinson for being charged for merchandise they had not purchased, Woody Robinson usually apologized and corrected their account balances but if some of the customers sometimes paid the illicit charges, so this shows that customers unknowingly helped Woody Robinson sustain his fraudulent scheme. Next, We identify that Felix Garcia, the Huntington sales manager is also one of the parties that responsible for inventory losses because Felix Garcia stated that he was not discussed the customers complaints with Woody Robinson or the sales representative. Normally, when Felix Garcia received a customer complaint, he just simply passed it to the appropriate sales representative and was allowed that individual to deal with the matters. Furthermore, We also found that Felix Garcia maintain a file of customer complaints only because he was told to do so by the previous sales manager whom was replaced three years earlier. So, We found that previous sales manager also partially responsible for inventory losses. Next, Al Hunt is owner of Curcio’ tires and also Woody Robinson’s friend is also one of the parties responsible inventory losses because Al Hunt just continue purchase the tires even though another sales representative told that the company only sold closeout merchandise directly to wholesalers. Al Hunt also know that Woody Robinson was incredibly selling the tires at lower price. This shows that Al Hunt really responsible for inventory losses. We also identify that Al Hunt one of the major parties among the other parties who responsible for inventory losses.

2.4 However, there is a various forms of fraud risk management strategy that could be implemented by Goodners Brothers Inc. One of the fraud risk management strategy is communication and training. So, raising employees’ awareness of their obligations concerning fraud and misconduct control begins with communications and training. While many organisations take an approach, careful planning behind this effort can help send employees a clear message to take their control responsibilities seriously. Secondly, another fraud risk management strategy is audit and monitoring. Because since it is impossible to monitor every fraud and potential misconduct risk, management should develop a comprehensive auditing and monitoring plan that is based on the organization’s fraud risk assessment process. Then, another fraud risk management strategy is employee and third-party due diligence. An important part of an effective fraud and misconduct prevention strategy is using appropriate due diligence in the hiring, retention and promotion of employees, agents, vendors and other third parties. Such due diligence becomes especially important for those employees with authority over the financial reporting process. Furthermore, another fraud risk management is code of conduct. That is actually a well -written code of conduct is one of the most important mechanisms to communicate with employees about acceptable business standards. It sets the organization’s tone on control culture, raises awareness of management’s commitment to integrity and provides the resources to help employees achieve management’s compliance goals. All those fraud risk management strategy that we stated that could implemented by Goodner Brothers Inc.

3.0 Finally, we come with conclusion that the management or the board of this company is mainly responsible for the design of internal control and conveying to staff their internal control responsibilities. Peoples is the one who make internal controls work. Everyone in the company plays an important role. As problems are noted, staffs should be communicated, so that adjustments or corrections can be made. There is few benefits of internal control mainly for employees is actually to help prevent errors and irregularities from occurring. If they do occur, Internal controls will help ensure they are detected in timely manner. By this report, we believed that the board of Goodner Brothers Inc is should be able to overcome the internal control weaknesses. It makes the fraudulent in the company will be reduced and particularly Huntington sales office can be maintained or sustained consistently ranked as Goodner’s second or third most profitable sales outlet.

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