AUDIT CASE 1 FROM SPARKS TO FIRED: ETHICAL AND INTERNAL CONTROL VIOLATIONS SURRO

Question

AUDIT CASE 1 FROM SPARKS TO FIRED: ETHICAL AND INTERNAL CONTROL VIOLATIONS SURROUNDING BUSINESS ENTERTAINMENT EXPENSES BACKGROUND Michael Sparks, or "Sparky" as his friends call him, is the manager of sales for the N orth C District of a large, publicly held consumer products company. Always cheerful and smiling, he is the type of neighbor most people long to have. One day, you sce Sparky taking out the trash and notice his forlom face and his somber step. You know immediately something is gravely wrong. "Sparky, what is the matter?" you ask. All he says as he puts the trash bag in the can is, "I think I am going to be fired on Monday." You are taken aback. Sparky has been the leading salesperson for this company for years. He not only still has his own customers, but he also manages dozens of salespeople under him. He has more "Best Boss" mugs in his cupboard than anyone you knew. All you can ask is, "Why?" ntral He is also your next door neighbor. THE PROBLEMS Sparky relays the situation: "A year ago, the company hired a new president to steer the company away from financial peril-the current economy had created a cutthroat environment for these types of consumer products. Our company kept falling short of analysts' forecasts, and the stock price had fallen drastically until this president came onboard. The new president not only wanted to maintain the current level of sales, or increase it, but also wanted to reduce costs. He asked employees to find ways to boost the bottom line. He asked the internal audit staff to look for ways to decrease inefficiencies and waste. Moreover, the new president's goal was to accomplish this without massive layoffs. The company's overall mission was "to be honest, fair, and responsible to our stockholders, to our employees, and to our community" He felt massive layoffs would go against this philosophy." You are confused. Then why do you think you would be fired? It sounds like this guy does not want to get rid of people." Well," Sparky replies, "Our internal audit department rotates divisions to be audited, and it was my division's turn this year. When the internal audit staff members audited my sales district, they found numerous unethical and questionable practices, mostly occasions when sales staff entertained customers. They discovered most of the problems when they audited the expense reports submitted by my sales staff" "Like what?" you ask. Sparky shook his head and put his hands over his face.

Explanation / Answer

COSO focus on internal control in an organization and on mechanism of identifying the risk and mitigating the same by framing strong internal policies and practices. COSO emphasize on development of strong internal communication channel which help the organization in timely identification of risks and taking appropriate steps for mitigating the instances of the risks

The Eight Component’s of COSO ERM framework is as follows :

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