Answer A:
The two fundamental types of internal audits are operational audits and compliance audits.
An operational audit is a comprehensive review of the varied functions within an enterprise to appraise the efficiency and economy of operations and the effectiveness with which those functions achieve their objective. An example would be an audit to assess productivity. Other examples could include an evaluation of processes to reduce rework, or reduce the time required to process paperwork or goods.
A compliance audit is the review of both financial and operating controls to see how they conform to established laws, standards, regulations, and procedures. An environmental audit would be an example of a compliance audit. Other examples of compliance audits could include the review of controls over industrial wastes or the review of procedures ensuring that proper disclosure is made regarding hazardous materials on site.
Answer B:
1. A compliance audit would best fit the requirements of the president of Brawn.
2. The objective of this compliance audit is to assure the president that the manufacturing facility has appropriate policies and procedures in place for obtaining the needed permits, has obtained all the required permits in accordance with the law, and that environmental and safety issues are being properly addressed.
3. The assignment specifically is to address the proper use of permits, compliance with safety regulations, and compliance with environmental standards. These issues can only be properly addressed by conducting a compliance audit. Although financial and operational areas might be involved, they would be secondary to the compliance issues. For example, a financial impact could result from the evaluation of compliance with safety regulations.
The findings might result in additional expenditures for safety precautions or a reduction in the company’s risk of being fined for lack of compliance.
Answer C:
To mitigate the president’s concern, the following activities and procedures could be implemented.
Set the tone at the top. The president should communicate to all employees that the company expects appropriate business practices on the part of all employees in all divisions.
Ensure that all employees have the necessary information to perform their duties. Keep the lines of communication open. For example, involve senior mangers from the manufacturing facility in monthly operational meetings for the whole company.
Conduct regularly scheduled audits of compliance with applicable laws, regulations, and standards.
Periodically review and update policies, rules, and procedures to ensure that internal controls prevent or help to detect material risks. Make sure all employees have access to the relevant policies and procedures. For example, post the policies and procedures on the company’s intranet.
