Question

You have completed your production and cost overview, interviews, major system walk-throughs, and documentation of controls. You are preparing your preliminary assessment of the plant’s controls and are preparing to test its production and scrap operations. You are satisfied, based on the results of your preliminary work that the plant appears to be operating on a reasonably efficient basis despite the uncertainty the plant employees are facing. However, your professional training has taught you to be skeptical of all controls and processes until they have been tested. You hope the results of your tests will be consistent with the results of your preliminary work and interviews.

Discuss the Raeford plant’s controls over its operations using a COSO framework. In your discussion, consider company and operating factors in addition to procedural controls.

Identify and discuss any control risks associated with the company’s scrap operations. Categorize your risks according to management assertions relating to its scrap transactions (occurrence, completeness, accuracy, classification, and cutoff).

Using elements of the Fraud Triangle, adopted by SAS 99, discuss the potential for fraud in Stanley’s operations. Make certain you consider the company and operating issues that impact the plant in addition to specific procedural controls. What key fraud factors (if any) do you see present, and what might account for them?

Evaluate the scrap operations for any evidence of fraud? Support your evaluation through the use of analytical procedures and corroborating evidence. Your manager has requested that you quantify the amount of any fraud you think is present. Would your evidence be convincing to management that a problem exists?

Identify any internal controls and/or operational changes you would make to improve the plant’s controls over scrap and its plant operations. Quantify the potential benefits of any suggestions you make.

Answer 1

The COSO is generally accepted frame and model for evaluating internal controls, effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws etc. the componets of COSO as follows: 1. Control Environment 2. Risk Assessment 3.Control Activities 4. information and communication and 5. Monitoring.

Normally in plant the Scrap operation gets second priority. The revenue received on scrap sale might not be screened as Normal operations. As a result there is chances of fraud or adjustments in employees side. The Occurrance is high.

According to Fraud triangle the "Opportunities" is effective here as the sale or recycling normally makes som extra income to employees as this involved bit relaxed control by management.

In this scrap operating the evidence will not much convinsing to management.

Internal Control or operational changes can make as to link the scrap movement and sale with the standard suppliers or recyclers. The Management can reduce the leakage happening, and on a yearly basis that would be a considerable savings.