A Lapse of Ethics

Whistleblower complaints prompt an audit committee chair to seek guidance from the organization’s chief audit executive.
 
Lisa is the hard-working chief audit executive (CAE) for Joyce Musical Instruments (JMI), a privately owned manufacturer and distributor of fine musical instruments and accessories. The firm is headquartered in the Midwestern United States, with additional facilities in Ireland, Hungary, Japan, Korea, the Philippines, and China. JMI employs nearly 1,800 people, and its annual revenues are approaching us $300 million.
 
Lisa heads the company’s four-person internal audit shop and oversees the annual audit plan. Her plan is based on The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) Internal Control–Integrated Framework and includes operational, financial, and compliance audits and reviews.
 
Following a recent audit committee meeting, Lisa received a telephone call from Cyndi Winters, JMI’s audit committee chair. Cyndi is troubled by findings from a quarterly review of concluded whistleblower investigations discussed at the meeting. Specifically, her concerns center around one case that involved a series of ethical lapses at one of the firm’s overseas facilities. The case involved allegations of unfair treatment of employees, personal use of company resources, and conflicts of interest, reportedly resulting in the turnover of skilled craftsmen who were unwilling to further tolerate management’s inattention to unethical practices.
 
Because of Lisa’s extensive company knowledge and trustworthiness, Cyndi wants to obtain her counsel before approaching Mike, the CEO, about expected next steps. She is looking for some viable options for preventing future ethical lapses, particularly in light of the sensitive nature of this situation. What should Lisa consider before responding to Cyndi’s request? What alternative solutions might she propose, including modifications to her annual audit plan and risk assessment?
 
Post your own thoughts on this scenario, or see expert commentary in the full version of the article.


Case study options
Cyndi may plan for a visit at the overseas branch to get the exact problem area. than appropriately formulate the solution
Posted By: ketan
2011-09-22 6:15 AM
A lapse of ethics
The CAE should first consider the risks these allegations might do to the business.
Posted By: Mohamed Ahmed Kadiar
2010-08-11 7:03 PM

First, the audit plan should be flexible enough to allow any sudden change that, in accordance to its relative importance,may apply. Lisa sholud obtain a formal request and document its interaction with Cindy in regard of this matter, in prevention of any further situation or implication that may emerge as a result to the meeting with CEO.
Posted By: CPA Douglas Solis
2009-10-06 3:37 PM


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