Question

The internal audit department of V. Gama College has recently completed a review of
the systems relating to portable equipment. The review focussed on compliance tests
on the controls over the custody of these assets.
The college’s accounts department maintains a centralised asset register. New assets
are recorded on the register as part of the system for the recording and payment of
purchases. The asset register identifies the department responsible for the care and
maintenance of each asset. Disposals are notified to accounts using a form that has
to be signed by the relevant head of department. Departments are required to conduct
an annual physical inspection of their portable assets.
A team of internal auditors led by Mr X Shangase, extracted a sample of entries from
the asset register for each of the college’s departments and physically inspected each
of the assets in the sample. This inspection proved satisfactory, with just one
exception. When the audit team visited the music department it asked to see a number
of items including a clarinet. The music department’s technician became slightly
evasive and stated that the clarinet could not be inspected because it had been signed
out by a member of teaching staff. The audit team asked to see evidence of this and
was concerned to discover that the signature was dated more than two years
previously. The technician said that the signature belonged to a former member of
staff who had left the college six months ago.
The internal audit department submitted a report concerning this incident to the
College Principal, Miss M Shange. Four days later, the Head of the Music Department
Miss P Rangasamy telephoned the internal audit department to report that the clarinet
had been in the department at the time of the audit, but that the technician had not
been aware of its location. The former staff member who had signed the clarinet out
had returned the instrument soon afterwards and had simply forgotten to record the
instrument’s safe return. The Head of the Music Department insisted that a member
of the audit staff inspect the clarinet in order to confirm its presence, which was done.The Head of Internal Audit was not satisfied by the response. He was concerned that
the Head of the Music Department could have been covering up a theft committed by
a former colleague by requesting the return of the clarinet and by fabricating an
explanation that the instrument had been mislaid as at the time of the audit. The
College Principal acknowledged these concerns, but instructed the Head of Internal
Audit to take no further action.

DETAILED ANSWERS.
(a) Discuss the implications for the internal audit department of the events up to and
including the discovery that the clarinet had been signed out by a former member of
staff.

DETAILED ANSWER:
(b) Discuss the implications of the responses by the Head of the Music Department
and the College Principal
(i) for the governance at the college.
(ii) for the actions the Head of Internal Audit will take in response to these.

Answer 1

(a) The internal audit deparrtment of V Gama College has recently completed a review of the systems relating to portable equipment. The review focussed on compliance tests on the controls overcthe custody of these assets.

The college's accounts department maintains a centralised asset register. New assets are recorded on the register as part of the system for the recording and payment of purrchases. The asset register identifies the departtmenf responsible for the care and maintenance of each asset. Disposals are notified to accounts using a form that has to be signed by the relevant head of department. Departments are required to conduct an annual physical inspection of their portable assets.

A team of internal auditors led by Mr. X Shangase, extracted a sample of entries from the asset register for each of the college's deparrtments and physically inspected each of the assets in the sample. This inspection proved satisfactory with just one exception. When the audit team visited the music department it asked to see a number of items including a clarinet. The music department's technician became slightly evasive and stated that the clarinet could not be inspected because it had been signed out by a member of teachering staff. The audit team asked to see evidence of this and was concerned to discover that the signature was dated more than two years previously. The technician said that the signature belonged to a former member of staff who had left the college six months ago.  

The internal audit department submitted a report concerning this incident to the College Principal, Miss M Shange. Four days later, the Head of the Music department Miss P Rangasamy telephoned the internal audit department to report that the clarinet had been in the department at the time of the audit, but that the technician had not been aware of its location. The former staff member who had signed the clarinet out had returned the instrument soon afterwards and had simply forgotten to record the instruments safe return. The head of the Music Department could have been covering up a theft committed by a former colleague by requesting the return ofbthe clarinet and by fabricating an explanation that the instrument had been mislaid as at the time of the audit. The College Principal acknowledged these concerns, but instructed the Head of Internal Audit to take no further action.

The main purpose of developing a system to run an organisation is to ensure smooth functioning and maintenance of organisations property with a standard maintenance and control procedure . Internal audit is done to reensure the system is in order. Every department head is expected to ensure no human error effects the functioning of the organisational system.  

When an internal audit team finds a mismatch, it is very important to be reported to the competent authority and recomendations for corrective measures to be taken. The College  Principle influencing the internal audit department actually nullifies the main purpose of audit. In the above scenario it is quite obvious willful misappropriation has happened in the department of music and there is a possibility that department head was aware of the theft of the clarinet.

(b) The implications of the responses by the Head of the Music Department and the College Principal.

(I) For the governance at the college : Trying to influence an audit department is not at all a good sign for an efficient and honest running of an organisation. Once a system is developed, organisation is not dependent on individuals capability for the smooth running and maintenance of the property of the organisation. The system has to be followed without fail no matter which employee is moving out of the organisation.

Such an incident of department head and Principal influencing the audit team gives a wrong example to be followed.  

(II) Head of the Internal Audit team has to report his team's findings to the competent authority . The attempts to influence the audit should also be reported as it is a threat to the future of the organisation's running.

Conclusion : The audit team findings are very clear about the missing of clarinet when audit was going on in music department. The explanation from the departments technician was not satisfactory and the attempts to protect the mistake and influence the audit team further gives reasons to question the intention and integrity of the Head of the Department and the Principal.