Organizing a Risk Analysis. You are the director of internal auditing of a large municipalhospital. You receive monthly financial reports prepared by the accounting department, andyour review of them has shown that total accounts receivable from patients has steadily andrapidly increased over the past eight months.Other information in the reports shows the following conditions:∙ The number of available hospital beds has not changed.∙ The bed occupancy rate has not changed.∙ Hospital billing rates have not changed significantly.∙ The hospitalization insurance contracts have not changed since the last modification 12months ago.Your internal audit department audited the accounts receivable 10 months ago. The auditdocumentation file for that assignment contains financial information, a record of the riskanalysis, documentation of the study and evaluation of management and internal risk mitigation controls, documentation of the evidence-gathering procedures used to produce evidenceabout the validity and collectability of the accounts, and a copy of your report, which commented favorably on the controls and collectability of the receivables. However, the currentincrease in receivables has alerted you to a need for another audit so any existing problemwill not get out of hand. You remember news stories last year about the manager of the citywater system who got into big trouble because his accounting department double-billed allresidential customers for three months.Required:You plan to perform a risk analysis to understand the problem if indeed one exists. Write amemo to your senior auditor listing at least eight questions to use to guide and direct the riskanalysis. (Hint: The questions used last year were organized under these headings: (1) Whodoes the accounts receivable accounting? (2) What data processing procedures and policiesare in effect? and (3) How is the accounts receivable accounting done? This time, you will add a fourth category: (4) What financial or economic events have occurred in the last 10months?)
Organizing a Risk Analysis. You are the director of internal auditing of a large municipal
hospital. You receive monthly
your review of them has shown that total
rapidly increased over the past eight months.
Other information in the reports shows the following conditions:
∙ The number of available hospital beds has not changed.
∙ The bed occupancy rate has not changed.
∙ Hospital billing rates have not changed significantly.
∙ The hospitalization insurance contracts have not changed since the last modification 12
months ago.
Your internal audit department audited the accounts receivable 10 months ago. The audit
documentation file for that assignment contains financial information, a record of the risk
analysis, documentation of the study and evaluation of management and internal risk mitigation controls, documentation of the evidence-gathering procedures used to produce evidence
about the validity and collectability of the accounts, and a copy of your report, which commented favorably on the controls and collectability of the receivables. However, the current
increase in receivables has alerted you to a need for another audit so any existing problem
will not get out of hand. You remember news stories last year about the manager of the city
water system who got into big trouble because his accounting department double-billed all
residential customers for three months.
Required:
You plan to perform a risk analysis to understand the problem if indeed one exists. Write a
memo to your senior auditor listing at least eight questions to use to guide and direct the risk
analysis. (Hint: The questions used last year were organized under these headings: (1) Who
does the accounts receivable accounting? (2) What data processing procedures and policies
are in effect? and (3) How is the accounts receivable accounting done? This time, you will add a fourth category: (4) What financial or economic events have occurred in the last 10
months?)
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