I am having trouble figuring out what the problem is with this. I am not too good at internal audit and have read through this several times and am not sure what the problem with the executive director not wanting to talk about this concern during the meeting as originally planned by the CAE. Any help in figuring out or explainign why this is a problem would be much appreciates.

There will be one application paper as part of this course. In the Internal Audit profession, not only do internal auditors communicate verbally, but also there is a lot of written communication. Internal audit professionals rely on good writing skills as part of their communication. Writing skill are not only important, but also critical for success. All work assigned in this section should be prepared on a computer, in good form, and be grammatically and typographically correct. This document will explain the expectations and requirements for the paper, as well as the case study and grading rubric. Format and Requirements 1. Statement of the problem(s) involved in the case study (below). 2. In rank of order of importance, the IIA Standards and/or other criteria, which must be present in any acceptable solution. Note: The Standards are included in the Appendixes and Other Resources Module See Appendix B. The IIA Code of Ethics may be another useful resource and it is Appendix A in the Appendixes and Other Resources module. 3. Provide two or three alternative solutions on how you would deal with the problems(s) identified in step 1. 4. Your chosen solution, incorporating the rationale for that solution. 5. The paper must be no more than two pages. It up to you to decide single or double spaced - you just need to ensure your points are made on two pages. The size of font should be either 11 or 12. If you provide any citations then you can put those on a 3 page. 6. The due date is March 12, 2023. Additional Information: For item #2 you will need to determine the criteria you will use to arrive at any of your acceptable solutions (item #3). The criteria will need to align with the problem (item #1) you identified in the case study and with your applicable solutions (item #3).

Case Study The Sawyers Public Retirement System (SPRS, also referred to as the System) is a retirement system for local governments such as cities and counties. SPRS has various mechanisms for people to report fraud, waste, and/or abuse. One such method is through the Fraud, Waste, or Abuse Hotline. This hotline is available so that anyone may report any suspicions of fraud, waste, or abuse within or related to the System. The hotline is used to report: Any dishonest or fraudulent act that impacts SPRS Any elder abuse (physical or financial) of a retiree Misappropriation of funds, securities, supplies, or other assets Vendors who may be defrauding SPRS Disclosure of confidential and proprietary information to outside parties Forgery, alteration, or falsification of records An SPRS employee who is abusing the relationship with a vendor or SPRS itself (e.g., conflict of interest, bribery, or insider trading) Improper handling or reporting of money or financial transactions The individual making the report can decide which level of confidentiality they want. For example, they can provide contact information or decide to remain anonymous. It is a way for employees and/or members of the public to submit tips. The Division of Internal Audit receives all information related to the fraud, waste and/or abuse report; and performs research and determination on if the tip is fraud. Some of the policy information (i.e., from the Internal Audit Charter and from Governance Policies) for the System includes: The Division of Internal Audit provides independent, objective assurance and consulting activity to the Board of Directors (Board), executive director, and other staff; and is designed to add value and improve operations. The Chief Audit Executive (CAE) has direct, but limited access to the Board. The CAE reports functionally to the Board and administratively to the executive director. The CAE will communicate and interact directly with the Board, including in Board meetings and between meetings as appropriate. The reporting structure is designed to provide internal audit independence and objectivity as required by professional standards. The Internal Audit Charter states the Division of Internal Audit will administer the Fraud Reporting Hotline and notify the executive director and the legal staff of any compliance related issues that appear to involve fraud or would otherwise be considered material.

On average there are eight tips received each year. The Division of Internal Audit tracks the tips in an electronic system, indicating if they are a valid tip, as well as comment on the resolution of each item. In addition, the Division of Internal Audit reports high-level information on the tip to the executive director and legal staff and reports the outcome to the Board in the Quarterly Audit Plan Status Reports. This has been the long-standing common practice. On February 16, 2021, the CAE received an anonymous tip from the Fraud, Waste, and/or Abuse Hotline with information that the Street Department was not reporting all the amounts of paid overtime to SPRS. The tipper believed this was fraudulent behavior because SPRS was not accepting the compensation as part of their reportable wages, and therefore the compensation payment would not be included in the calculation for a future retirement benefit. Additional Information: The Street Department made all final overtime payments at the end of the month. SPRS did not accept any payroll, including overtime payments after the final pay period (which covers the termination date). If an employee resigned in the beginning of the month, the Street Department would not report the compensation as reportable compensation because the overtime payment occurred after the final paycheck. However, if an employee were an active employee, then the overtime compensation would be considered reportable compensation by SPRS. After performing an investigation, the CAE notified the executive director and the legal staff about the tip with conclusion that it did not appear to be fraud. The CAE prepared the Quarterly Audit Plan Status Report for the Board, which included a paragraph on the fraud. The CAE requested the legal staff to review the language regarding the tip. The legal staff had a few edits, of which the CAE agreed made the paragraph better. Next, the CAE shared the Audit Plan Status Report with the executive director for final review, with an indication that it was going to the Board later that month. The following was the fraud tip information in the draft Audit Plan

Status Report:

Fraud Tip: We received one anonymous tip through the Fraud, Waste, and/or Abuse Reporting Hotline on February 16, 2021. The tip related to SPRS not including the overtime compensation for those employees at the Street Department who terminated as part of their future retirement benefit. As per policy, the Division of Internal Audit shared the tip with the Executive Director and the Internal Counselor for their legal review and they agreed the tip was not fraud, but rather an operational concern. The Division of Internal Audit considers this a closed tip in the Fraud Tracking System.

The executive director replied via email with the following:

Thanks for the review Appreciate your work and update. I would prefer to remove the Fraud Tip paragraph for a couple of reasons. First, I do plan to address this topic during the legal portion of the next Board meeting, regardless

of the ultimate outcome of the process. Second, we are relatively certain we know the situation surrounding this tip and are working with the City Commissioner on the issue. Because there is a good faith effort to address the concern, I believe we should allow the process to work its way through to completion before reporting on a fraud tip. I am open to discussing in further detail if you would like to do so. The executive director later provided verbal comments to the CAE regarding the tip, indicating that it causes a concern if the fraud tip was included in the status report on whether it would make the City Commissioner look bad and cause a conflict between SPRS and the City.