In: Accounting
Based on each of the following scenarios below, draft an effective finding for the Management Letter. Five Components of an effective finding:
Write one paragraph.
scenario:
During an operational audit of a University department, it was discovered that four new vehicles had been purchased in January, but had not yet been insured by the time the audit occurred in April. The vehicles had been driven approximately 3,000 miles during that time.
Maintaining strong Internal control is mandatory for the all the corporations. This can avoid financial loss to the businesses.
Factual Finding-: During the operation audit, it has been observed that four vehicles has been purchased in the month of January. But it has not been insured till the time of audit i.e. April. Hence the asset was not insured till 3,000 miles.
Why this is a risk and how significant it is?
Risk can be defined as exposure to the entity to which it can disrupt the business or cause financial or operational loss. Not taking insurance exposes to the vehicle to loss for any accidental damage. If something went wrong, the university department cannot realize the insurance claim. Thus unrecoverable financial loss will be to the entity. Its significance depends upon the fact that these assets are how much material to the department. If the assets consists of significant value then it can be said that it's a significant risk and accordingly high risk.
Lapse of Control-: There is no operation control in the entity and thus it cause deficiency in the internal control framework of the entity. There should be periodical review of uninsured new purchased asset. This control is not even compensated by any other controls and thus categories it in significant deficiency.
Due to the potential financial loss to the department, they should care for this risk. They can place some control to mitigate this risk.
Controls like periodical review,supervision etc can be placed upon in internal control framework. Through which above risk can be fully mitigated.