Los Angeles Internal Controls and Fraud Case

Los Angeles Internal Controls and Fraud Case

Objective

 

This case study is designed to expose students to a variety of conditions that may or may not indicate a fraud has been committed. Consideration must be given to errors that are present in a normal business environment, internal control weakness accepted by management, as well as obtaining an understanding of procedures and their long-range effect on business. Control weaknesses by themselves are not major problems. The combination of the control weaknesses, coupled with the inexperience of the internal auditor and a limited audit budget present real life situations. Students need to understand the overall control environment and not just deal with individual procedure errors. 

 

Control weaknesses by themselves are not major problems. The combination of the control weaknesses, coupled with the inexperience of the internal auditor and a limited audit budget present real life situations. For example, does the auditor know when to expand an audit test, discontinue tests, and ask for additional dataWhat information is needed, who should respond, and what reliability should be placed on the information? Does the auditor know what is necessary to support an audit recommendation or, more importantly, to provide evidence in a criminal case?

 

Required

 

Please read all of the requirements carefully and make sure your paper addresses each item. It would be helpful for your own use to develop a high-level process map. A rough guideline to adequately complete the assignment is 5-6 single-spaced pages.

 

  1. If you were part of the audit team, what additional questions would you ask to gather more audit evidence? You need to focus on what is most important to this case. You must come up with at least 10 relevant questions. You must have some questions for each of the five areas: receiving, loom teardowns, customer orders, disposal of residues and scrap metal, and administration of the loom reclamation program. You must indicate what you hope to learn from each question (i.e., what is the intent of the question?) and to whom the question would be addressed. 
  2. Identify your top four internal control weaknesses in order of materiality in each the following five areas: receiving, loom teardowns, customer orders, disposal of residues and scrap metal, and administration of the loom reclamation program. Please make sure you address the most important control weaknesses. 
  3. For each observation identified in #2, write your recommendation(s) to strengthen internal controls over the loom reclamation program. Make sure each recommendation is clearly associated with an observation(s) from #1. One recommendation can cover several internal control weaknesses.
  4. In your opinion, has a fraud been perpetrated? If so, what evidence supports the allegation? Is it firm enough to convict the person(s) in court? Please explain the rationale for your conclusions.

Please carefully read the instructions and the case study.

Please feel free to use KnowledgeLeader and other resources available on the web for research.

 

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