PSC Performance Based Auditing

Risk-Based Approach

HO 5-1 State Department of Fruits and Vegetables
BACKGROUND In reviewing the laws relating to the Department, its mission statement, strategic plan, and other information provided by management and legislative staff, the following primary Department objectives have been identified: OBJECTIVES; 1. Increase the consumption of State grown fruits and vegetables through effective advertising. 2. Increase sales of State grown fruits and vegetables within the State, the U.S. and internationally.

Promotion and Advertising Objectives: x x x Obtain economic and effective advertising services. Pay for only those advertising services actually received. Provide the Department and management with accurate and complete marketing information. x Maintain accountability for Department assets.

Charlie is completing the planning phase of the audit of Promotion and Advertising. At this point, Charlie and his audit team have obtained the following additional information: 1. The current Executive Director has served for two years. 2. Statutes relating to the procurement of advertising services indicate that the Department may select contractors on a competitive basis. The Department has used the same advertising contractors for the last 5 years. 3. A large percentage of the amounts paid for advertising is paid to television networks for time during which the Department’s ads were to have been broadcast. The broadcast times are provided to the Department by the advertising firms and the Department pays the networks directly.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-1

PSC Performance Based Auditing

Risk-Based Approach

4. The Department maintains significant foreign currency balances that are used to pay for advertising in foreign markets. These balances are susceptible to rapid changes in value. 5. The Audit Section’s pending file for the SDFV contains several newspaper articles in which several growers have questioned whether the direction of SDFV advertising programs were consistent with grower needs and expectations. 6. The fund balance in the Fruit and Vegetable Advertising Trust Fund has been declining over the last three years. The major source of revenues for the Fund is the Fruit and Vegetable ‘bushel’ tax. 7. The State’s Department of Agriculture also has responsibilities relating to the fruit and vegetable industry. The Department is responsible for, among other things, inspecting the packing and processing plants and identifying and eradicating pests and diseases. 8. The advertising contracts require that the amounts paid be based on the number of hours actually worked by the firms on Department projects. The contracts provide a schedule of hourly rates for each of the firm’s departments (e.g., clerical, graphics, creative resources, partner, etc.). Invoices provided to the Department contain hours charged by department. 9. Each advertising firm is responsible for providing quarterly marketing statistics relative to the market share enjoyed by the State Fruit and Vegetable industry.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-2

PSC Performance Based Auditing

Risk-Based Approach

REQUIRED 1. Evaluate the adequacy of the objectives.

2. Identify at least two risks for each Promotion and Advertising objective.

3. Identify at least five possible performance measures for Promotion and Advertising. 4. Considering the objectives, risks and performance measures, develop the potential scope for an audit of Promotion and Advertising.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-3

PSC Performance Based Auditing

Risk-Based Approach

Adequacy of the objectives:

Additional objectives:

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-4

PSC Performance Based Auditing

Risk-Based Approach

Risks

x Risk: Risk:

Obtain economic and effective advertising services.

x Risk: Risk:

Pay for only those advertising services actually received

x Risk: Risk:

Provide the Department and management with accurate and complete marketing information.

x Risk: Risk:

Maintain accountability for Department assets.

x

Additional Objectives and Risks:

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-5

PSC Performance Based Auditing

Risk-Based Approach

Performance Measures

Performance Measure

Performance Measure

Performance Measure

Performance Measure

Performance Measure

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010

HO 5-1-6

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.