Stan is an auditor for Cartman & Kenny, CPA. He has recently been assigned to a new private client called Southpark Services, a provider of web management services. Cartman and Kenny have clients throughout the United States. The company manages their client’s website, keeping them up to date, resolving problems and doing any other programming or troubleshooting that their clients need.
The two owners, Bob Cartman and Shelly Kenny are hands-on managers. They, along with 3 other employees provide the website management services for their clients. Although they don’t have access to their clients’ books or bank accounts, they have the ability to alter the website, and any data that flows through the website before it goes to the company or the customer. Carman and Kenny have one office manager with an undergraduate accounting degree and one full time bookkeeper.
In discussions with management, Stan learns that Southpark Services “doesn’t bother” to maintain any processes specifically directed toward good internal controls. When Stan asked why, management replied “internal control is too expensive for us, and since we are not a public company and Section 404 does not apply to us, we don’t see any value internal control can offer our management.”
a. Develop a list of concerns that Cartman & Kenny’s clients might have based on management’s attitude. Classify those concerns into 2 lists – concerns that affect Cartman & Kenny’s business, and concerns that might affect their productive output, and thus the clients’ business operations. Some of the concerns you identify might end up on both lists.
b. Suggest processes and controls that Cartman & Kenny can implement to limit the risk of the items you listed in a.
c. How would an auditor examine or test each of the processes and controls you list in b.