It is the policy of your company that the internal auditing department follow up its audit reports to ensure that appropriate action has been taken on findings of deficiencies. You are on an audit team that recently completed an audit of the marketing division of a large book-publishing company. One of your team’s findings was that promotion costs for trade books consistently ran at least 20 percent over budget, and often by as much as 40 percent.

The causes of these overruns were determined to be (1) an unsystematic method of determining the budgeted costs and (2) the failure of marketing personnel to use the budgeted amounts as realistic guidelines for spending. These personnel argued that the budget was always ridiculously low and totally unrealistic. And besides, they said, the budget was being prepared by an individual who had spent the past 10 years in the same job in the same office doing the same thing, and had never participated in any actual promotion work.

The audit report made two recommendations for correcting this situation. First, the report recommended that the employees planning the promotion of the trade books meet with the budget planner, who also worked as an accounting clerk, to prepare more realistic budgets. Second, it was recommended that a cost variance report be prepared for each book by the marketing department employee responsible for managing the promotional effort.

Not only would more realistic financial planning be possible, but stewardship comparisons would be easier with respect to the performance of different promotional personnel.

Required:

List and explain the steps you think would be necessary to satisfy the company policy for follow-up.