Develop a COSO-Based Audit Program

Based on the background information provided in the case study document, develop a COSO-based audit program. The audit program should address the following COSO objectives as applicable:

1. Operational:

Effectiveness and efficiency of operations.

2. Financial:

Reliability of information.

3. Compliance:

Compliance with applicable laws and regulations.

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The Tyronco Foundation

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Internal Auditing Academic Advancement Fund

The Tyronco Foundation operates worldwide to provide food and medicine to needy individuals in

third world countries. Thirteen countries currently receive assistance through the program. The

number of individuals that have benefited has increased from 407,000 in 1990 to over 721,000 in

2010. Data for current years is still being tabulated for annual reporting. Contributions are received

from foundations, agencies, governments and individuals. Tyronco outsources the marketing and

collection processes. The marketing agency publicizes the benefits and collects the donations.

The bylaws require that 75% of the funds collected be distributed to directly benefit the needy (benefit

expenses). The administration expenses cannot exceed 25% of contributions. The CEO has

recently determined that distribution costs should be reclassified from administrative expense to

benefit costs since distribution is a benefit to the needy.

Tyronco's marketing efforts highlight the guaranteed high percent payoff to the needy. The governing

agencies of several countries require that the attest auditors include the 75% goal in the financial

audit.

Background Information

The results of your preliminary work are outlined below:

Board-Audit Committee:

The 13 board members are prominent celebrities, politicians, and business people. Bernie Lay

serves as both the Chairman of the Board and CEO. Bernie was the CFO for five years before

being appointed as the CEO. The board members are selected by the Chairman of the Board

and approved by a majority of the Board. The five-member audit committee includes the

Chairman of the Board and four members appointed by the Chairman for a three year term.

The Board also includes a nominating committee, a risk committee and a compensation

committee.

The Board and the subcommittees meet for one day each quarter. The CFO is responsible for

the agenda and financial reports. THE Chief Audit Executive (CAE) and the external audit

partner share a one-hour slot on the agenda at each meeting.

Chief Executive Officer:

The CEO, Bernie Lay, has a military background and has established an autocratic

management style. He feels that this approach will develop a more efficient and effective

structure for a decentralized organization.

Chief Financial Officer:

Scott Z. Best, the CFO, previously served as the supervisor of accounts payable and was

promoted by the CEO. He was the manager in charge of the Tyronco account when he

worked for the attest auditors. He maintains a good working relationship with Temple and

Duncan, a small regional firm in Geneva.

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The Tyronco Foundation

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Internal Auditing Academic Advancement Fund

Operating Management:

Each participating country has an operating manager selected by the CEO. The managers

report directly to the CFO.

Internal Audit:

Martha N. Cider, the Chief Audit Executive, served as the lead auditor on the Tyronco

engagement when she worked for Temple & Duncan. She was hired because of her

knowledge of the financial aspects of Tyronco. As part of a cost-cutting move she reduced the

audit staff from 21 to 13 and cosources the collections, payables, and purchasing audits to

Temple & Duncan.

The reduction in staff was explained by increased usage of the data-mining technology.

Martha was in the MBA program with Bernie and Scott and is considered a rising star in the

organization.

Management requests from the CEO and CFO consume about 90% of available audit time.

The CEO feels that the auditors should be able to complete their audits from the headquarters

location by utilizing technology. He has reduced the travel budget but significantly increased

the budget for systems training and audit software. The hiring focus is now on systems

knowledge.

External Auditors:

Temple and Duncan (T&D) have been the low bidder the last three times the organization has

requested attest proposals. The external auditor proposals are reviewed by the CFO who

recommends a firm to the Audit Committee for approval. Tyronco represents 60% of T&D's

audit revenues and 80% of their consulting revenues.

Purchasing:

The purchasing function is decentralized with a purchasing agent located in each of the 13

countries that qualify for food and non-prescription medicine. The Vice-President of

Purchasing at headquarters has requested that the 13 purchasing agents purchase 50% of all

items from vendors located in the same country as the recipients. The agents operate

somewhat autonomously and can sole-source or utilize competitive bids.

Local purchases are typically 20-30% higher than obtained through a competitive bid process.

The CEO supports this approach since he feels that it establishes good relations with local

government officials and business people.

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Warehouse:

The receiving clerks and distribution managers report to the Purchasing Agent. Inventory

status reports are issued quarterly to the V.P. of Purchasing who prepares a summary report

for the CEO & CFO.

The quarterly purchasing reports from the purchasing agents to Headquarters are provided on

the following spreadsheet.

Total

Vendor

Description

The primary headquarters control and review is a comparison of budget to actual. Purchasing

Agents are provided with a quarterly budget generally based on demographics of the

recipients. Adjustments are made to the budget based on actual contributions received from

countries, organizations, foundations, and personal sponsors. The overall increase in

purchases has been approximately 13% per year but varied from a low of +7% to a high of

+21% between countries.

The summary quarterly reports are approved by the country manager and forwarded to the

CFO with the quarterly financial statements for review and approval.