a) Comment on Phil's preparation for and conduct of the audit. What should Phil have done differently?
b) Discuss and cite the possible violations of the IIA Code of Ethics and/or International Standards for the Professional Practice of Internal Auditing that Phil committed. Be specific.
2) A summary of an internal audit engagement performed at the request of executive management is presented below.
The claims department of XYZ Insurance Company has instituted new claims procedures for local offices. The new procedures have been designed to improve the review of claims and to prevent both overpayment and payment of false claims. Management mentioned concern about the new procedures at the opening conference of the audit engagement. Management told the internal auditors that 30 complaints had been received recently about the excessive time it took to receive the insurance proceeds for their claims. The company advertises 48-hour claim service. Each of the 30 claims that generated the complaints took seven days. Management said these were the first complaints of this type and were received only after the new procedures were implemented. Management feared that if the claims took too long to process, many clients would switch to another company. The internal auditors decided to find out if processing time had really increased, and if so, whether this was because of the new procedures.
The internal auditors decided to test 25 randomly selected claims made since the change in the procedures and 25 claims from before the procedures and compare them. The tests revealed that the new process had caused an increase in the processing time for two reasons. First, there was a learning effect with the new required forms. The headquarters claims department often had to correct the forms and request additional information before claims could be processed. Second, the new process required a more extensive review than before, sometimes even including a field visit by one of the claims staff in addition to the regular inquiry by one of the company's claims adjusters.
The internal auditors estimated that the delayed disposition of the claims seriously eroded the marketability of the company's insurance policies, perhaps decreasing sales by as much as 10 percent the first year and up to 25 percent in subsequent years. The new procedure also increased the cost of servicing claims by 5 percent to 10 percent, depending on whether an additional inquiry is conducted by one of the claims department staff members. The estimated savings on payment of improper claims was equivalent to a maximum of 10 percent of total expenditures in any one year.
There were differences of opinion within the audit team as to the appropriate course of action. After much debate within the audit team, the final audit report recommended returning to the previous claims service procedures, with minor modifications, to avoid the problems associated with the revised procedures. The additional review procedure recommended in the report was a computer scan of company records to ascertain any previous claims by the 30 claimants and the nature as well as the amount of prior claims.
Required:
A) Write an alternative internal audit recommendation to the one in the final audit report. You should include at least two specific actions in your recommendation.
B) Describe at least three alternative internal audit procedures the audit team might have chosen to those procedures the team actually performed. Why do you consider your procedures to be superior to the ones chosen?
3) The Foundation for Critical Thinking states that all subjects have a fundamental thought process. In order to understand the thought process, they recommend raising some questions. Please respond to the three questions below using what you have learned in this course.
a) What are some of the most basic concepts in internal auditing?
b) What kinds of questions do internal auditors ask?
c) What types of inferences, judgments and assumptions do internal auditors make?
4) a) When and in what ways do audit engagement communications occur?
b) What actions regarding audit engagement observations must the internal audit function take after the
final audit report is issued? Be specific.
Attachment:- internal_auditing_questions.zip