Reference no: EM132867148

SCS is a large Melbourne-based financial institution offering a wide range of financial services to investors. One of SCS's most popular services is portfolio management for people who have moderate to high levels of wealth. SCS's financial analysts have consistently obtained high returns for their clients. Moreover, SCS has invested substantial amounts in training its analysts so they can provide high levels of personal service to their clients. As a result, clients have continued to comment favorably on their dealings with the company.

You are a member of the external audit firm that has just taken over the audit of SCS from another audit firm. As part of the audit, your partner has asked you to review output controls in the system used to provide portfolio management services for people. During your review, you note that SCS prepares monthly statements for its customers. In an interview with SCS's manager of information systems operations, you obtain the following information about the system:

a) the monthly customer statement print run is initiated by the manager in charge of the portfolio management section. He often prints the statements on a laser printer located in his section. If this printer is unavailable for some reason, however, he will direct output to another laser printer that is available somewhere else within the organization. No special preprinted stationery is used for the statements; instead, the company's logo, and so on, are stored as a template within the print program that produces the statements. About 500 statements are printed each month.

b) When you ask whether customer statements have ever been lost, the operations manager indicates he believes there have been a few occasions in the past in which statements for a few particular customers have gone missing. On these occasions, the manager in charge of the portfolio management section had printed the statements at a location outside his department. He had then been delayed and had not been able to collect the statements promptly. When the statements had gone missing, he simply printed another copy for the customers whose statements were missing.

c) The monthly statements plus address labels are given to a small mail distribution organization located in the same building as SCS. The manager in charge of portfolio management simply leaves the statements and address labels on his desk at the end of each month, and a clerk from the mail distribution organization picks them up off his desk at some time.

d) From time to time, customers will complain about not receiving their monthly statements or receiving their statements late. Sometimes work overload pressures in the mail distribution organization lead to errors in dispatch or delays in dispatching statements. Customers have been willing to accept these problems, however, because of the high level of service provided by the analysts.

e) Complaints about customer statements are directed to the analyst responsible for the customer's portfolio. Customers have instructions on their statements to contact their analysts in the event of problems or complaints.

f) A copy of the customer statements is written to a cartridge. The statements are kept for five years before they are deleted. Deletion occurs automatically when the operating system detects the retention date has expired. Cartridges are kept on site in case they are needed to respond to a query.

Please identify, with justifications, any four control weaknesses in SCS. Based on these control weaknesses, what audit strategy should the auditor adopt?