Subject: To Let the Management Know About the Weaknesses in their Internal Control
An internal audit of Tarheel Textile Mills was performed to learn about the internal management deficiencies and control weaknesses of various divisions within the Tarheel Textile Plant. Many flags are lifted with respect to quality, quality, and accountability. Necessary steps to combat these adversaries were suggested. A fraud concern was posed inside the Tarheel Textile Mill, but it was found upon careful inspection that the company was not facing imminent fraud, but certain red flags were posed. Any more study is advised in order to encourage professionals to eliminate these red flags in time until they can harm the Tarheel Textile Mill.
Auditors should ask management the following questions to carry out an excellent internal audit:
Is every detail in the books of the purchase order present?
How many looms are used in the Textile Mill facility?
Which individual is responsible for managing the area of the business where handwritten lists of looms are maintained?
Have all the details about the looms that are being used been provided?
What computer program is used to account for and manage all documents concerning the fixed assets of the Textile Mill's different types of ledgers?
Who is responsible for retaining looms from the department of loom teardowns?
When was the person responsible for maintaining the Department of Teardown Looms appointed?
Which person is assigned in the Mill's supply room to take care of the shipping documents for looms?
When was the person responsible in the supply room to maintain and analyze shipping documents for the looms?
What two supervisors are responsible for choosing the looms' components if the statements are taken from the bins in the Mill's supply room or the operations' malfunctioning looms? Please include all the information about these two people.
Please include every information about the person responsible for caring for the loading of trucks and purchasing available scrap and residue sections of the looms from the Factory.
Who is the person responsible for taking care of the whole process of authorizing the expulsion of looms from the accounting records in the fixed assets?
What is the number of average undocumented orders supplied per month by the teardown department or the Textile Mill's supply room?
Who makes the Loom Teardown Report per week in the administration? Tags are placed on any loom that has been dismantled in the week reported in the study, but often, either the labels are not placed on the shipped looms, or these tags are so loose that during the shipping process, they fall off the looms.
Defects in the Internal Control While Collecting the Material Orders:
The receiving department of Tarheel Textile Mills was not making proper documentation of some critical components.
Duties were not actively divided among the receiving department.
Mill's receiving department failed to take adequate measures to protect some of the assets from gaining material losses.
It is recommended to the Tarheel Textile Mill that it should hire some better qualified and more experienced personnel in the receiving department.
The Mill employees were found to make wrong entries in their registers.
Findings Related to Control Deficiencies in Some Departments of the Textile Mill are as Follows:
Loom Teardown Department
The Loom Teardown department is found o be using a perpetual inventory system, which is not working efficiently according to our observations.
Tag numbers of looms are not taken care of, and they fell from the looms over the period because of inefficient maintenance.
Weekly Loom Teardown Reports are compiled by personnel from both the administration and accounting department.
Ordinary carries, Customer trucks, and Tarheel Textile Mill trucks are used for shipping.
Looms are not checked at the gates of the Textile premises by the responsible personnel.
The Textile Mill is not using any security guards or watchmen in the support division.
Loom Reclamation Program
The program members are not as qualified and experienced as the members of other departments of the Mill.
The Textile Mill places the scrap metals in a central area, terrible for the Loom Reclamation program's internal control.
The support division of the Mill is deprived of any safety or fire measures at all.
The entrance gate of the Mill and the gate where the looms are operational are not locked.
The loom teardown department is heavily understaffed.
Scrap Metal Disposal
The supervisors working in the loom department are given undocumented orders most of the time. Because of this, the scrap metal disposal internal control department has no proper record of customer orders.
Most of the staff members in Mill's loom teardown department, which, as a result, hinders the working capability of the Mill.
Actions Proposed for Dealing with the Internal Weaknesses of the Mill
Proper orders to carry out the documentation in the accounting department should be made.
Steps should be taken to stop the accountants from making wrong entries in the Textile books.
The receiving department of Tarheel should dictate the duties of its workers within.
Tarheel should be focusing on bringing in more educated and experienced labor in the receiving department.
Loom Teardowns Department
Proper precautionary measures should be taken so that the tags stop from being misplaced on the looms.
Mill's perpetual accounting system should be scrutinized, and effective measures should be taken to make it more efficient.
The focus should be on monthly Loom Teardown Reports rather than weekly reports.
Measures should be taken so that the checking of looms is effectively started at the premises of the Mill.
Security personnel, guards, and guards should be hired and used in the company's support division.
The document concerning shipments should be scrutinized more than once.
Loom Reclamation Program
The Mill should be focused on hiring and empowering highly qualified and experienced members for the internal control department staff just as the way this procedure is being followed in every other department within the Tarheel Textile Mills.
The Textile should make proper arrangements and follow-ups to ensure that the Mill and the passage's central entrance passage leads to where all the looms are operating and functioning should be locked carefully.
Opinion Regarding Fraud
The person responsible for purchasing and transferring the extra resources present at the Tarheel Textile Mills from the department of supply and the supply room and the support division, Mr. Arthur Thomas, received a call from someone who had claimed that he was serving Tarheel Textile Mills. The person who called confessed that the person who is responsible for supervising two significant departments of Tarheel Textile Mills, namely the Loom Teardown Program and the Support Division, has been conspiring to teach the representatives in finding 64” X-3 draper weaving machines and loading the machines into carriage trucks without a legit request by a client. Upon knowing this, the Textile management took some steps to investigate this matter in detail and hired a corporate security investigator, thus unveiling the facts about this conspiracy.
The security investigator who was hired from a corporate security investigation company looked into the supply and support departments issues and told that:
Fences encompassed the whole area.
The main entrance gate and the passage towards operational looms were locked.
Looms were operational from a distance of about 300 yards from the main gate.
The accounts and admin offices were near the area where looms were operational.
There were no safety or fire control measures in the area.
There were no security personnel and watchmen in the area.
The main passages of the Textile Mills opened to relatively well-crowded streets.
Some workers of the Tarheel Textile Mill made disturbing statements regarding the loom reclamation program showing that they were not completely happy with the program. Leon Curtis, a part-time employee at the Tarheel Textile Mill, was the first member of the Mil staff to raise red flags. He was a technician who had retired from a nearby Tarheel factory. Leon Curtis told that the Loom Teardown Supervisor, Shaw, asks the workers to look for 64” X-3 Draper looms all over the places where they are operational daily. Curtis also claimed that Shaw would not tell the reason for his order and forced the workers to follow his orders. Also, Curtis argued that he did not know any client orders requested for the 64” X-3 Draper looms as far as he is concerned.
Another worker named Harvey Jolly claimed that a new guy named Bob Johnstone started visiting the site instead of the guy who came. Jolly said that it is tough for the crewmembers to comply with all the parts required, mostly when the number of looms ranged from 12 to 14. He also reported that there were some times during the weekend when baskets containing brass went missing.
The employed corporate protection investigator challenged Alan Shaw, who served as the reclamation programme's boss, upon discovering all this. Workers described Shaw as someone who was born to be a manager and that he was amiable. The past assessments of Shaw about his results revealed that the only problem with Mr. Alan Shaw was his quick temper. When the investigator asked Alan Shaw about the accusations against him, Shaw said that the allegations were false, and he needed proof for the allegations. Shaw told the investigator that, contrary to the existing procedure, he had always played by the book and done stuff.
After all this, the hired corporate security investigator named Arthur Thomas went on to ask Johnstone and Company with his mindset on meeting important representatives who would provide critical data regarding the investigation proceedings. Johnstone and Company were one of the biggest clients of Tarheel Textile Mills, who itself bargains for scrap and garbage metal.
When asked questions, Mr. Johnstone denied all the fraud charges straightforwardly and claimed that he had nothing to do with it. Mr.-Mr. Johnstone declined the accusation of giving any monetary compensation to any Tarheel Textile Mills member for transporting parts of weaving machines. When Arthur Thomas asked Mr. Johnstone, to have a chat with his son or two, Mr. Johnstone declined to give his son and had no connection to the ongoing investigation concerning the fraud. This alarmed the corporate investigator as questioning Mr. Johnstone's son was crucial to the inquiry.
After all this, the corporate investigator briefed the Director of Corporate Purchasing and the Supply Bolster Manager of the discoveries. Both of them decided to do a physical stock assessment of the weaving machines present in the region. A well composed approach was created and introduced. They agreed to take the stock by aggregate tally and not by weavers of the individual kind. An difference they created in the physical assessment was that every 64 "X-3 loom must be individually accounted for and the numbers would be labelled for every loom..
After all of this, in addition to all the previous ones, the Admin and Accounting office conducted some more research and came up with the following conclusions:
Since the inception of the system, around 24 months ago, weaver deposits invoiced to weaving machines from different resource records brought forward 38 missing weavers.
The workforce concerning the Tarheel Textile Mills registers shows that some of this change can be because of the poor bookkeeping, especially at the very start of the project and faulty planning of Loom Teardown reports.
Around 16 Tarheel Textile resource labels were found in Mr. Shaw's drawer, estimated to be gathered within an extended period. When the bookkeepers followed these labels, all the titles were traced to 64” X-3 Draper weavers.
Zero receipts were issued to clients for the metal in the last year, and no 64” X-3Draper weavers were accounted for on shipment reports, which showed that all this was done in the previous half-year.
These results by the accounting office remarkably helped the overall investigation.
The security investigator then visited all the relevant people and questioned them regarding every matter. He came with the result after analyzing all the leads that no fraud had occurred in the department. But there were some suspicions raised as Mr. Johnstone did not cooperate with the pending inquiry, and neither did he let his son, who had flagged him, communicate with the investigator.
Lastly, we may conclude that the corporate security investigator should ask the Mill owners to conduct a more detailed investigation on this matter. A more comprehensive investigation report should be made with more qualified professional investigators as this would satisfy all the major internal and external stakeholders.