The board of directors of Crystal, Inc. has decided to change the administrative structure of its management organization in order to accomplish several objectives related to internal auditing:

1. The board wants to expand the scope of the auditors' responsibility to include a broader range of operations.

2. The board wants to increase the degree of auditor independence from operational and administrative management.

3. The board wants to expand the auditing department and recruit highly qualified auditors who would be capable of being promoted to top executive positions in the company as its operations grow into new markets.

4. The board wants to have more direct access to the internal auditing department in order to pursue specific questions that might otherwise not be investigated.

5. The board wants audit reports to go to all management levels where the information might be relevant.

6. The board wants the internal auditors to be able to assist with the external audit, which is conducted by an outside CPA firm, in order to decrease the cost of that audit.

Currently, the internal auditing department is under the administrative arm of the corporate controller's office and is respensible almost exclusively for audits of the internal financial control system. In the past, all of the internal auditors were hired from local CPA firms. Under the current system the audit reports go directly to the controller, his or her supervisor, and the corporate vice president of finance. A summary report is given annually to the board of directors regarding the internal auditing activities of the previous accounting period.

Required:

a. Diagram the current administrative and reporting relationships between the internal auditing department and the various levels of management in the company.

b. Propose a new administrative and reporting structure for the internal auditing function that would help achieve the objectives set by the board of directors. Diagram this structure.

c. Explain how your proposed structure would help achieve the different objectives.