Posted: March 16th, 2022

Case Study

EASYMONEY, INC.

Background
It was virtually midday when Diego Vilas and Miguel Sema landed on the airport in Lima, Peru. The 2 auditors cleared customs and met the corporate controller of EasyMoney Inc., a big multi-national company. The controller drove them to the headquarters within the lovely neighborhood of San Isidro. Prior to now, the Peruvian subsidiary obtained its inner auditing companies from its Chilean affiliate. Beginning with this journey, these companies might be supplied from auditors primarily based in Argentina.

After a number of years of civil unrest and authorities corruption, Peru’s economic system had opened its borders and was rising once more. Gross Home Product was rising at a fee increased than 5% for the primary time in 10 years. Partly due to the change within the economic system, but additionally due to an enormous re-structuring, the corporate was anticipated to develop at charges near 50% annually.

The re-structuring began with the appointment of Fernando Pelos as the brand new managing director. On the similar time, the 30 year-old Peruvian subsidiary layed off many skilled workers and new administration, with little expertise, was appointed. Two years later, Mr. Pelos stepped down from his place as a consequence of a critical sickness. At this level, Adolfo Alonso, the monetary supervisor, took over the managing director tasks and likewise maintained his monetary duties. Though he held an MBA in finance from the College of Chicago, he didn’t have a lot sensible accounting expertise. As well as, throughout that 12 months Pedro Balbo, a techniques analyst, was appointed treasurer. He additionally didn’t have an accounting background however had been with the corporate for 11 years.

An inner audit of Money Administration had not been carried out for 2 years and was scheduled for this go to. When interviewed by the auditor, Martin Conforti, the accounting clerk in control of financial institution reconciliations talked about that that they had not been achieved lately. Apparently, Lidia Lemos, the cashier, was refusing to supply details about gadgets that had been excellent for a number of months.

With this in thoughts, the auditor requested extra questions to assemble details about the finance group and the financial institution reconciliation course of.

Mrs. Lemos was a loyal 20 + years worker at EasyMoney Inc. who used to convey meals on daily basis for different firm “previous timers”. Mrs. Lemos used to work late and take virtually no trip. Really, she had not taken any trip in 5 years. She used to say, “This firm is my household,” though among the “previous timers” had been laid off within the re-structuring venture.
The auditor additionally met Juan Ottone, the workplace Helpant, who was in control of depositing money collections. Apparently, he was not required to supply deposit advices to the cashier when deposits have been made, and audit opinions confirmed that some deposit advices have been lacking.

As well as, Mrs. Lemos would money workers’ private checks. In conversations along with her, the auditor additionally discovered that she would comply with firm procedures for funds to suppliers, however as a result of she was a good friend to a few of them, she would ultimately money their checks too. She used cash from buyer collections for these transactions.

No matter money was remaining from buyer collections, she would deposit in considered one of six financial institution accounts. Sometimes, she would deposit within the account, which she knew was going to be reconciled that month. Additionally, every day she would put together money and financial institution accounting data, which might then be processed by the Credit score and Collections division.

When the auditors wished to carry out a money depend, the cashier indicated that counts weren’t a standard follow on the subsidiary and he or she solely allowed the exterior auditors to depend money at year-end.

After speaking to the cashier and workplace Helpant, the auditors checked out financial institution reconciliations and located that they weren’t reviewed and authorized by administration as required in Company Tips. Though reconciliations have been accomplished, a number of giant reconciling gadgets remained excellent for a lot of months. Apparently, Mrs. Lemos was in control of receiving financial institution statements however she didn’t present them to the accountants on a well timed foundation. With out offering any coaching for them, financial institution reconciliation duty had been assigned to 3 totally different accounting clerks in a single 12 months.

Additionally in reviewing reconciliations, the auditors seen a year-end entry of $200,000 to regulate the checking account ledger. Additionally they recognized related entries, which had been recorded every month from August to year-end. These entries have been made earlier than reporting monetary knowledge to the mother or father firm within the US.

After two lengthy days of assembly folks and gathering data, Diego and Miguel mentioned the obvious management weaknesses and likewise deliberate for the place extra detailed audit testing was mandatory.

Required

1. Establish controls that present cheap assurance over the money, banking, and accounting features.

2. What weaknesses within the money, banking and accounting controls do you imagine Diego and Miguel ought to level out to administration?

three. Develop suggestions to appropriate the reportable situations recognized below Merchandise 2, above. Additionally embody any advice(s) you will have to enhance operational effectivity.

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