QUESTION $4(20$ MARKS$)$

Carequip specialises in the distribution of medical and surgical products, equipment and disposables to

health sectors within South Africa and neighbouring countries. Carequip employs a sales team of $40$

representatives and assigns each a geographic territory that is quite large. Sales representatives search

for new business and follow up on sales leads to win new business and maintain contact with the

existing customer base.

The sales representatives spend almost all their time travelling to visit clients and potential clients. They

are required to attend a sales meeting, once a month, at the regional offices in Johannesburg. All sales

representatives are required to submit a weekly report to their regional managers which gives details of

the new and existing clients visited during the week and total sales. The regional managers do not

interfere with the daily routines of the sales people as long as they are generating target sales every

week. They also have to submit a list of their expenses for the week to the regional manager.

Consequently sales representatives have freedom to do as they please.

The regional manager will then report all the sales and expenses of the sales representatives to the

Head Office Finance department.

At the last meeting for Regional managers, the Head Office Finance department highlighted the increase

in sales representatives$$ expenses as a proportion of sales revenue over the last two years and

instructed the regional managers to improve the controls over the work representatives carry out

and the expenses they incur. During the board meeting the expectation regarding the company$$s profit

targets were set. The board has made it clear that if the sales representatives do not reach their target

they will have to take action in order to reach the required targets.

REQUIRED:

a$)$ Recommend how internal audit can use analytical procedures during their internal audit of the sales

representative expenses. $(4)$

b$)$ Explain the risks faced by Carequip in relation to the sales representatives and

recommend specific controls to be implemented to reduce the risks.