Bancroft Corporation has an internal audit department operating out of head office. Various types of audit assignments are performed by the department for the eight divisions of the company.

The following findings resulted from recent audits of Bancroft Corporation's Appliance Division.

1. One of the departments in the division appeared to have an excessive turnover rate. On investigation, the personnel department seemed unable to find enough workers with the specified skills for this department. Some workers are trained on the job. The departmental supervisor is held accountable for labour efficiency variances but doesn't have qualified staff or sufficient time to train the workers properly. The supervisor holds individual workers responsible for meeting predetermined standards from the day they report to work. This has resulted in a rapid turnover of workers who are trainable but not yet able to meet standards.

2. The internal audit department recently participated in a computer feasibility study for this division. It advised and concurred on the purchase and installation of a specific computer system. Although the system is up and operating, the results are less than desirable. The software and hardware meet the specifications of the feasibility study, but there are several functions unique to this division that the system has been unable to accomplish. Linking of files has been a problem. For example, several vendors have been paid for materials not meeting company specifications. A revision of the existing software is probably not possible, and a permanent solution probably requires replacing the existing computer system with a new one.

3. One of the products manufactured by this division was recently redesigned to eliminate a potential safety defect. This defect was discovered after several users were injured. At present, there are no pending legal actions because none of the injured parties has identified a defect in the product as a cause of their injury. There are insufficient data to determine whether the defect was a contributing factor.

The director of internal auditing and assistant accountant is in charge of the internal audit department and reports to the CFO in head office. Copies of internal audit reports are sent routinely to Bancroft's board of directors.

REQUIRED

a. Explain the additional steps in terms of fieldwork, preparation of recommendations, and operating management review that ordinarily should be taken by Bancroft Corporation's internal auditors as a consequence of the audit findings in the first situation (excessive turnover).

b. Discuss whether there are any objectivity problems with Bancroft's internal audit department as revealed by the audit findings. Include in your discussion any recommendations to eliminate or reduce an objectivity problem, if one exists.

c. The internal audit department is part of the corporate treasury function, and copies of the internal audit reports are sent to the board of directors.

(1) Evaluate the appropriateness of the location of the internal audit department within Bancroft's organisational structure.

(2) Discuss who within Bancroft should receive the reports of the internal audit department.