Reference no: EM132400725

Twin Glass Corporation has an internal audit department operating out of the corporate headquarters. Various types of audit assignments are performed by the department for the eight divisions of the company. The following findings resulted from recent audits of Twin Glass Corporation's White Division:

1. One of the departments in the division appeared to have an excessive turnover rate. Upon investigation, the personnel department seemed to be unable to find enough workers with the specified skills for this department. Some workers are trained on the job. The departmental supervisor is held accountable for labor efficiency variances but does not have qualified staff or sufficient time to train the workers properly. The supervisor holds individual workers responsible for meeting predetermined standards from the day they report to work. This has resulted in a rapid turnover of workers who are trainable but not yet able to meet standards.

2. The internal audit department recently participated in a computer feasibility study for this division. It advised and concurred on the purchase and installation of a specific computer system. Although the system is up and operating, the results are less than desirable. The software and hardware meet the specifications of the feasibility study, but there are several functions unique to this division that the system has been unable to accomplish. Linking of files has been a problem. For example, several vendors have been paid for materials not meeting company specifications. A revision of the existing software is probably not possible, and a permanent solution probably requires replacing the existing computer system with a new one.

3. One of the products manufactured by this division was recently redesigned to eliminate a potential safety defect. This defect was discovered after several users were injured. At present, there are no pending lawsuits because none of the injured parties has identified a defect in the product as a cause of the injury.

There is insufficient information to determine whether the defect was a contributing factor. The director of internal auditing and assistant controller is in charge of the internal audit department and reports to the controller in corporate headquarters. Copies of internal audit reports are sent routinely to Twin Glass's board of directors.

Questions:

a) Explain the additional steps in terms of field work, preparation of recommendations, and operating management review that ordinarily should be taken by Twin Glass Corporation's internal auditors as a consequence of the audit findings in the first situation (excessive turnover).

b) Discuss whether there are any objectivity problems with Twin Glass Corporation's internal audit department as revealed by the audit findings. Include in your discussion any recommendations to eliminate or reduce an objectivity problem, if one exists.

c) The internal audit department is part of the corporate controllership function, and copies of the internal audit reports are sent to the board of directors.

(1) Evaluate the appropriateness of the location of the internal audit department within Twin Glass's organizational structure.

(2) Discuss who within Twin Glass should receive the reports of the internal audit department.