No Issues 1 the CEO is responsible for appointing the chief internal auditor

the chief internal auditor reports directly to the finance director

Explanations The management should not be involved in the appointing of people within the audit department because the auditor will not be perceived as independent. By doing so, all the problems will remain unknown at superior levels (CEO, BoD and Audit Committee).

Ways of overcoming The Board of Directors or the Audit Committee should appoint the chief of internal control.

the finance director assists the chief internal auditor in deciding on the scope of the work of the internal audit department

Matalas has an internal audit department of six staff

By assisting the CIA in deciding the work of internal audit department, the independence of the internal control could be jeopardized and the management can impose specific constraints on internal auditors work. Based on the factors that influence the size of the internal audit department like industry, organization size and geographic location and taken into account other key factors (corporate governance, internal audit mission, internal audit service quality etc.) we may state using our professional judgement that 6 members are not enough.

As long as the internal audit department is tied to the Audit Committee/BoD, it should report primarly to them. The management should be aware of the auditors findings and take into account his suggestions. According to Corporate Governance Code, the scope of internal audit should be decided by the Audit Committee.

The organization can: - outsource - hiring new staff for audit department - internships

all of whom have been employed at Matalas for a minimum of five years and some for as long as 15 years

All accounting systems, apart from petty cash, are computerised, with the internal audit department frequently advising and implementing controls within those systems

There is a high probability that some employees in the audit department can be on the same position for many years, they may get too attached and that may lead to the decrease of independence. Not having controls could lead to irregularities that can not be discovered. By introducing a computerised accounting system for petty cash would lessen the control activity.

We strongly recommend the implementation of a rotation program: rotating out, rotating in and within the internal audit department.

The company should implement controls on every process. The frequency of reviewing each process by the internal auditors depends on the related risks.

b)

No 1

Deficincies The average petty cash balance at each branch is significantly higher than the average monthly expenditure Petty cash is kept in a lockable box on a bookcase in the accounts office Lack of segregation of duties ( the accounts clerk pays, approves and records in the petty cash book) Imprest system is used for reimbursement Explanation: The imprest system ensures that any shortfalls may have to be replenished by the guardian, usually a bookkeeper, of the petty cash float from their own personal

2 3

Recommended controls At the end of each month the balance should be inquired by a treasurer and the amount exceeding the average expenditure + safety amount ( computed by the branch characteristics) should be deposited in a bank account. Only the treasurer should have access to petty cash box. The expenditures should be approved by the superior level of the requirer. When the approval is received, the treasurer will be the only one who reimburse the cash and the accounts clerk will record it in the books. The chief accountant and the treasurer should check the amount of petty cash at the end of the month.

resources. Only that which is recorded as spent is replenished. So, it can be used by the accountants as a way to finance their personal expenses without interest on a normal credit.