Draw up a memorandum explaining to Mr Nkosi what the internal audit department’s role should be regarding the risk management process.
Compu Limited is a company that manufactures computer monitors, keyboards, computer boxes and modems (both internal and external). These four products are sold all over the country and in a few overseas markets. The head office is situated in Sandton, South Africa, with three plants in other parts of the country. Four years ago, a fourth plant was opened in Zimbabwe to take advantage of the inexpensive labour available. 90% of the items manufactured in Zimbabwe are shipped back to South Africa and the remaining 10% are sold in other African countries.
Compu Limited advertises its products in computer magazines, on the internet and over the television. It shares are traded on the Johannesburg Stock Exchange (JSE). Three major organisations account for almost 50% of Compu’s sales and the remaining sales are made to other smaller computer manufacturers. Lately one of these customers is constantly complaining about the lack of new technology in Compu’s products.
A total of 900 plant workers, 15 supervisors and 27 general office staff are employed in the three plants in South Africa and another 360 workers are employed in Zimbabwe. The South African workers are affiliated with COSATU (union). An office staff of 40, a sales force of 20, 5 managers, and a purchasing staff of 10 are employed at the head office.
The Zimbabwe plant has 12 sales and office personnel. There are three supervisors responsible for 360 Zimbabwean workers, one chief accountant and one director in charge of all operations. The director in charge of the Zimbabwe plant has 15 years’ experience in the computer component industry. However, he has relatively few experienced managers reporting to him and those that are competent, are targeted by similar companies paying higher salaries. The chief accountant has an accounting degree but is still in the process of obtaining his professional qualification. There are three accounting clerks, handling all accounting functions – cash handling, all journals all ledger accounts and all reconciliations. The absence of sufficient qualified accounting personnel has resulted in a lack of proper segregation of duties within the accounting department.
During the last four years the company has shown an increase in both sales and profits. Compu’s management has predicted an average of 15% growth in earnings for the next two years. However, many new competitors have entered the computer component market in the last few years. One of them has been making a big effort to take a part of the market share away from Compu Limited, by offering rock bottom prices on keyboards, monitors and modems. Computer components such as keyboards, modems and boxes can also be obtained in far eastern countries such as Indonesia, India and Malaysia at very competitive prices.
During a previous board meeting, it was decided that the internal audit department should investigate the company’s adherence to the requirements of the King IV Report. According to the King IV Report one of the cornerstones of corporate governance is the implementation of a risk management strategy. After internal audit reported back to management on their findings management undertook to implement a risk management process. Mr Nkosi, the chief executive officer has asked you the chief audit executive to implement such a process.
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Draw up a memorandum explaining to Mr Nkosi what the internal audit department’s role should be regarding the risk management process. |
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