Stephen Scott recently joined the Finance and Planning Division of the Carrigan Bank (Bassillo) Limited as an assistant chief financial officer (CFO). Scott is a certified management accountant and has spent the previous four years working in the accounting department of a large Canadian manufacturing company. He took the job at the bank because it provided an opportunity to get some international business experience. One of Scott’s responsibilities is to perform an initial review of the capital budgeting proposals developed by the various divisions at the bank. Because the bank’s divisions are very large and have a high degree of operating autonomy, each division has its own divisional controller, who prepares the proposals with input from key managers in the division and other bank personnel. For 2015, the bank budgeted $500,000 for capital spending in each of the six major divisions for projects requiring less than $100,000 of expenditures. For projects of that size, the divisions are free to go ahead and spend the funds as they see fit, without the need for centralized review and approval. The bank budgeted a further $20 million in capital spending for 2015 to be allocated to the divisions on the basis of the project proposals submitted as part of the capital budget review process. These proposals are for individual projects requiring capital expenditures in excess of $100,000.
Required:
1. What should Scott do?
2. Would the use of post-audits solve the problem of the overly optimistic project proposals being submitted at the bank? Why or why not?
3. Who should be involved in conducting the post-audit process?