Auditing

There are six key control weaknesses in an Entity’s internal control.

They are collusion between employees and third parties, inadequate
internal control, management override of internal control, collusion
between employees or management, lack of control over
management by those charged with governance, and finally the last
problem is ineffective or non-existent ethics or compliance
programme.

As mentioned above, there are also some control weaknesses and

it’s implications that were evident in Huntington unit’s operations.
The first weaknesses that occurred in Huntington unit’s operation
are the management override. An entity’s control may be overridden
by management. As we can see clearly in the case study, the
management had faced many internal control problems. This
management override problem can be clearly seen from the
implication done by the sales manager, Felix Garcia, who overrides
his duty to monitor his unit’s accounting records. He admitted to
internal auditors that the long hours required just to keep the tires
coming and going and left him little time to monitor his unit’s
accounting records which caused an inventory shortage problem in
his control unit. When pressed by the auditors to provide possible
explanation for the inventory shortage, Garcia erupted. “Listen. Like I
said, my job is simple. My job is selling tires. I sell as many tires as I
can, as quickly as I can. I let you guys and those other suits up in
Youngstown track the numbers.” This phrase clearly shows that he
overrides his responsibility to monitor his unit’s accounting records.
He let his lower level management to do so. This can lead to large
inventory shortage due to stock stealing. This is the first main
weaknesses that had occurred in Huntington.
Besides that another weaknesses that mainly occur in the
Huntington management is the collusion between employees or
management. Collusion is the effectiveness of segregation of duties
lies in individuals’ performing only their assigned tasks or in the
performance of one person being checked by another. This weakness
also occurred in the Huntington management. As we can see in the
case study, the sales reps and the sales manager jointly executed the
credit function for each Goodner sales outlet. Not only that, Woody
the sales representative of Goodner for Huntington location also had
made sure that his team was one of the two count teams assigned to
the remote storage facility. By maintaining the count sheets for his
team, Woody could easily inflate the quantities for the tire lots that
he and his team members counted. By doing so, he had advantages
and can easily steal company’s stock. This collusion between the
management and employees can cause a large loss to the company
due to fraud and stealing of stocks. Not only had that, the Goodner
Company owners, T.J. and Ross Goodner relied heavily on the
honesty and integrity of the employees they hired.

The third weakness that occurred in the Huntington management is

ineffective or non-existent ethics or compliance programme. As we
can see clearly in the case study, the internal auditor is not effective
in counting the inventory of Goodner. As mentioned in the case
study, the average interval between the internal audit inventory
counts typically ranged from 15 to 20 months. “The internal auditor
had last counted the Huntington location’s inventory in May 1996,
two months before Woody Robinson began stealing tires.” This
phrase clearly shows that the internal auditors are not effective in
doing their responsibilities or job in counting the company’s
inventory. This weakness can really give a big losses for the company
as you can see in the Goodner case, the Woody Robinson had stole
the tires for long time but the auditors can only smell his unwanted
doings after few years. This is mainly because they are not effective
in inventory count. If they are effective in counting the inventory
every months, this company can avoid from facing such a big loss
due to stock stealing and can easily catch the employees
misbehaviours.