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AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Question

The Kuramo Art Gallery and Museum (KAGM) is in the centre of a city that is popular with tourists. About 65% of its income comes from admission fees and annual memberships, and about 30% of its income comes from sponsorship of special exhibitions by companies. Most of the remaining income comes from a small cafe and gift shop in the art gallery and museum.
Admission fees come from sales of tickets to daily visitors and from annual membership subscriptions from ‘Friends of KAGM’ who are entitled to free entry to the art gallery and museum at any time.
Day tickets can be purchased by credit card in advance, by a telephone ‘hotline’ or at KAGM’s website on the Internet. Alternatively, day tickets can be bought with cash or credit card at the ‘door’ on the day of the visit. Reduced prices are available for children, students, and individuals aged over 65, and there are also special reduced-price ‘family tickets’ for two adults and two children.
Sponsorship arrangements are agreed up to 18 months in advance. Some corporate sponsors, particularly transport companies (bus companies and railway companies) sell advertising to KAGM.
The management of KAGM have identified the following applicable risks that need careful attention. They believe that these risks should be managed actively.

(i) There is a failure to attract more visitors because of the poor condition of many of the paintings in the art gallery and of the items in the museum. Paintings must be restored regularly because their condition deteriorates. KAGM has just one specialist restorer, who is unable to keep up with the required volume of work. The management of KAGM recognise that investment in new items and the restoration of existing items is inadequate, but blame the lack of income for the problem.
(ii) Some corporate sponsorship agreements may not be invoiced due to poor communication between the sponsors, KAGM’s sponsorship managers, and the accounts department of KAGM.
(iii) Some sponsorship agreements are not invoiced at their correct amount. This happens often when a sponsor is also a company that provides advertising for KAGM. Normal practice is for these sponsors to deduct their advertising charges from the amount they pay to KAGM in sponsorship. However, the accounts department in KAGM is not given the details of these set-off arrangements.
(iv) Some of the cash received from day visitors at the door may be stolen (or lost, or used by management for business expenses) and does not reach KAGM’s cashier.
(v) The on-line booking system for buying tickets in advance on the KAGM website is not always available because the website is ‘down’.

Required:

(a) Describe appropriate internal controls to manage each of the applicable risks described above. (15 Marks)
(b) Explain the financial statement risks that arise from each of these applicable risks. (5 Marks)

Answer

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Tags: Cash Handling, financial statement risks, Internal Controls, Risk Management, Sponsorship
Level: Level 3

Topic: Internal Audit and Corporate Governance

PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

Question

Fraud is described as an intentional act involving deception to obtain an unjust or illegal advantage. It involves the presentation of a statement or representation made recklessly or without the belief in the truth or suppression of facts.

The Economic and Financial Crime Commission (EFCC) is a criminal investigation organisation in charge of investigating financial crimes involving politicians, economic saboteurs, and electoral fraudsters. EFCC’s “modus operandi” is such that any suspect or ‘accused’ must deposit all his money and other belongings with the exhibit section headed by Mr. Oripipe, a cashier, who is expected to pay all cash receipts collected by him to the Banking officer. The banking officer issues a revenue receipt to the Cashier.

Mrs. Innocent, the resident auditor, conducted a physical cash survey and discovered that the total amount on the duplicate receipt book with the banking officer is N4,550,000, which does not agree with the actual cash paid in. It was suspected that the organisation has been defrauded.

The following information relates to the deposits collected from January to December 2013:

Cash from Honourable Talaka: N12,500
Cash from a container with five suitcases, each containing N250,000: N1,250,000
Cash recovered from Anine, a criminal that raided Ifako bank: N4,000,000
Cash sales of impounded lace: N425,000
Five boxes containing consumable items earlier disposed of for N16,000, mistakenly kept in Mr. Oripipe’s drawer, were later discovered by the auditor.
On investigation, it was discovered that the banking officer was illegally removing N500 from every N2,500 paid to him by the cashier.

Required:

a. Explain briefly FOUR types of financial fraud. (4 Marks)

b. Prepare the correct statement of deposits from detainees as it should be in Mr. Oripipe’s records and identify the shortfall due to his negligence. (10 Marks)

c. Calculate the amount of cash lost by the government as a result of the fraud. (6 Marks)

Answer

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Tags: Cash Handling, EFCC Operations, Financial Control, Fraud Detection, Fraud Prevention, Public Sector Audit
Level: Level 2

Topic: Public Sector Auditing

AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

Question

Clear View Cinemas Nigeria Limited operates in the entertainment industry in five different locations. Access into the Cinema Hall is based on tickets purchased at the point of entry. The entity’s ticketing process is manually driven. At the beginning of every day, the ticketing staff collects and signs for manual tickets from the Accountant. Unused tickets are returned to the Accountant, while the ticketing staff prepares a sales report for the day, which is reviewed and signed off by the Accountant. Concession items such as popcorn and soft drinks are also sold to customers. Both the ticketing and concession transactions are paid for in cash. All cash received is handed over to the Accountant who posts the transactions to SAGE Line 50 Application at the end of every day’s transactions. In view of the Company’s prime location and level of awareness, it records a high volume of transactions daily.
To ensure there are no delays in payment of routine bills and also reduce exposure to bank charges, the Accountant disburses cash from daily collections and the balance is lodged into the bank on an irregular basis. Bank reconciliation statements are prepared at the end of the financial year in readiness for the audit.

Required:
As the Auditor in charge of this engagement, identify and evaluate the relevant internal control issues in the above scenario.

Answer

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Tags: Bank Reconciliation, Cash Disbursement, Cash Handling, Cinema Operations, Internal Controls, Manual Ticketing
Level: Level 2

Topic: Internal Control Systems
Series: NOV 2016

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Question

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Handling, financial statement risks, Internal Controls, Risk Management, Sponsorship
Level: Level 3

Topic: Internal Audit and Corporate Governance

PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

Question

The following information relates to the deposits collected from January to December 2013:

Cash from Honourable Talaka: N12,500
Cash from a container with five suitcases, each containing N250,000: N1,250,000
Cash recovered from Anine, a criminal that raided Ifako bank: N4,000,000
Cash sales of impounded lace: N425,000
Five boxes containing consumable items earlier disposed of for N16,000, mistakenly kept in Mr. Oripipe’s drawer, were later discovered by the auditor.
On investigation, it was discovered that the banking officer was illegally removing N500 from every N2,500 paid to him by the cashier.

Required:

a. Explain briefly FOUR types of financial fraud. (4 Marks)

b. Prepare the correct statement of deposits from detainees as it should be in Mr. Oripipe’s records and identify the shortfall due to his negligence. (10 Marks)

c. Calculate the amount of cash lost by the government as a result of the fraud. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Handling, EFCC Operations, Financial Control, Fraud Detection, Fraud Prevention, Public Sector Audit
Level: Level 2

Topic: Public Sector Auditing

AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

Question

Required:
As the Auditor in charge of this engagement, identify and evaluate the relevant internal control issues in the above scenario.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Reconciliation, Cash Disbursement, Cash Handling, Cinema Operations, Internal Controls, Manual Ticketing
Level: Level 2

Topic: Internal Control Systems
Series: NOV 2016

Question Tag: Cash Handling

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AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

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AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

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PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

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AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

You're reporting an error for "AA – Nov 2016 – L2 – Q3a – Internal Control Systems"

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

You're reporting an error for "AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance"

PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit

Explanation of financial fraud types and calculation of revenue loss within EFCC operations.

You're reporting an error for "PSAF – Nov 2014 – L2 – Q3 – Public Sector Audit"

AA – Nov 2016 – L2 – Q3a – Internal Control Systems

his question identifies and evaluates internal control issues at Clear View Cinemas, including cash handling, ticketing, and reconciliation processes.

You're reporting an error for "AA – Nov 2016 – L2 – Q3a – Internal Control Systems"

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