Internal auditing & controls. Human resources management, treasury and strategic planning (Module 9) Course Name: Internal Auditing & Controls

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1 Course Name: Internal Auditing & Controls Module: 9 Module Title: Human resources management, treasury, and strategic planning Handouts and lecture prepared by Chuck Campbell Human resources management, treasury and strategic planning (Module 9) This module addresses the role, main activities and risks of the human resources management, treasury and strategic planning functions and then illustrates the design and execution considerations for internal audits of these functions. The module contains sample audit programs for internal audits of human resources planning, treasury and strategic planning as well as an ACL illustration for human resource management. MU Module 9 Part 1 Slide 2 Internal auditing & controls Part 1 Module 9 Topic 9.1 Human resources management Topic 9.2 Human resources planning audit Case study Part 2 Topic 9.3 Treasury Topic 9.4 Treasury audit Case study Topic 9.5 Auditing the financial reporting process Part 3 Topic 9.6 Strategic planning Topic 9.7 Strategic planning audit Case study Part 4 Module summary Learning objectives Recent examination questions Hints for assignment 5 MU Module 9 Part 1 Slide 3 1

2 Internal auditing & controls Module 9 Part 1 Topic 9.1 Topic 9.2 Human resources management Human resources planning audit case study MU Module 9 Part 1 Slide 4 The role of the human resources management function The role of human resources management is to acquire, train, deploy, motivate and reward employees to maximize their contribution towards the organization s objectives. MU Module 9 Part 1 Slide 5 The main activities of the human resources management function The main activities in human resources management include: human resource planning; MU Module 9 Part 1 Slide 6 2

3 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; MU Module 9 Part 1 Slide 7 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; recruitment; MU Module 9 Part 1 Slide 8 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; recruitment; training; MU Module 9 Part 1 Slide 9 3

4 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; recruitment; training; labour relations; MU Module 9 Part 1 Slide 10 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; recruitment; training; labour relations; administration of benefits and compensation; MU Module 9 Part 1 Slide 11 The main activities of the human resources management function The main activities in human resources management include: human resource planning; organization design; recruitment; training; labour relations; administration of benefits and compensation; monitoring motivation and compliance with regulatory requirements. MU Module 9 Part 1 Slide 12 4

5 Risks related to human resources management activities 1. non-compliance with labour regulations; MU Module 9 Part 1 Slide 13 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; MU Module 9 Part 1 Slide 14 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; MU Module 9 Part 1 Slide 15 5

6 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; 4. failure to keep staff fully trained; MU Module 9 Part 1 Slide 16 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; 4. failure to keep staff fully trained; 5. failure to foresee future resource needs; MU Module 9 Part 1 Slide 17 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; 4. failure to keep staff fully trained; 5. failure to foresee future resource needs; 6. labour unrest; MU Module 9 Part 1 Slide 18 6

7 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; 4. failure to keep staff fully trained; 5. failure to foresee future resource needs; 6. labour unrest; 7. excessive labour costs; MU Module 9 Part 1 Slide 19 Risks related to human resources management activities 1. non-compliance with labour regulations; 2. high staff turnover; 3. failure to motivate staff; 4. failure to keep staff fully trained; 5. failure to foresee future resource needs; 6. labour unrest; 7. excessive labour costs; 8. inadequate information for decision-makers. MU Module 9 Part 1 Slide 20 Audit design concepts for a risk-based internal audit of the human resources planning function The case study provided in the lesson notes is comprehensive. It follows the format outlined in earlier modules: 1. Set audit objectives (and scope). 2. Determine the audit criteria. 3. Obtain background information. 4. Develop the audit programs. 5. Gather audit evidence (by carrying out the audit programs). 6. Evaluate the evidence. 7. Report the conclusions and recommendations of the audit. 8. Monitor implementation of recommendations. MU Module 9 Part 1 Slide 21 7

8 Examples of audit criteria human resources planning The demand for human resources should be forecast The future availability of human resources should be forecast The demand and availability should be compared to identify shortages and surpluses, opportunities and constraints Action plans should be prepared to address imbalances identified MU Module 9 Part 1 Slide 22 Management audit of human resources planning a case study Reading 9-4 Nut Case, Inc. Internal audit Human resource planning audit program MU Module 9 Part 1 Slide 23 Human resources audit use of ACL Reading 9.5 Computer illustration 9-1: Audit of human resources costs MU Module 9 Part 1 Slide 24 8

9 Past examination question on the internal audit of human resources planning Essay question December 2004, Question 3 (28 marks) MU Module 9 Part 1 Slide 25 Internal auditing & controls Module 9 Part 2 Topic 9.3 Topic 9.4 Topic 9.5 Treasury Treasury audit Case study Auditing the financial reporting process MU Module 9 Part 2 Slide 1 The role of the treasury function The role of the treasury function is to manage the organization s cash and financing activities, banking arrangements and foreign exchange exposures. MU Module 9 Part 2 Slide 2 9

10 The main activities of the treasury function The main activities of the treasury function include: cash management; MU Module 9 Part 2 Slide 3 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; MU Module 9 Part 2 Slide 4 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; MU Module 9 Part 2 Slide 5 10

11 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; cash budgeting; MU Module 9 Part 2 Slide 6 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; cash budgeting; budget preparation; MU Module 9 Part 2 Slide 7 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; cash budgeting; budget preparation; budgeting and monitoring capital expenditures; MU Module 9 Part 2 Slide 8 11

12 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; cash budgeting; budget preparation; budgeting and monitoring capital expenditures; internal control over cash; MU Module 9 Part 2 Slide 9 The main activities of the treasury function The main activities of the treasury function include: cash management; managing long-term financing; corporate planning; cash budgeting; budget preparation; budgeting and monitoring capital expenditures; internal control over cash; managing foreign exchange exposure. MU Module 9 Part 2 Slide 10 Organization of the financial function Chief financial officer provides overall direction, involved in corporate planning, raising capital, investment decisions, etc. Treasurer manages cash and financing activities including foreign exchange exposure Controller responsible for design and execution of internal controls and the provision of financial and operating information to senior and operational managers MU Module 9 Part 2 Slide 11 12

13 Risks related to treasury activities 1. insolvency; MU Module 9 Part 2 Slide 12 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; MU Module 9 Part 2 Slide 13 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; 3. ineffective planning; MU Module 9 Part 2 Slide 14 13

14 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; 3. ineffective planning; 4. excessive exposure to foreign exchange risks; MU Module 9 Part 2 Slide 15 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; 3. ineffective planning; 4. excessive exposure to foreign exchange risks; 5. inadequate knowledge of financial markets; MU Module 9 Part 2 Slide 16 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; 3. ineffective planning; 4. excessive exposure to foreign exchange risks; 5. inadequate knowledge of financial markets; 6. fraud or other defalcations; MU Module 9 Part 2 Slide 17 14

15 Risks related to treasury activities (continued) 1. insolvency; 2. excessive interest costs; 3. ineffective planning; 4. excessive exposure to foreign exchange risks; 5. inadequate knowledge of financial markets; 6. fraud or other defalcations; 7. inadequate cash flow forecasting. MU Module 9 Part 2 Slide 18 Treasury audit a case study Reading 9-9 Nut Case, Inc. Internal audit cash internal audit program MU Module 9 Part 2 Slide 19 Past examination question on the internal audit of treasury Essay question March 2004, Question 3 (26 marks) MU Module 9 Part 2 Slide 20 15

16 Roles in the financial reporting process Executive management is the owner of the control environment and financial information, including the notes accompanying the financial statements and the accompanying disclosures in the financial report. MU Module 9 Part 2 Slide 21 Roles in the financial reporting process Executive management is the owner of the control environment and financial information, including the notes accompanying the financial statements and the accompanying disclosures in the financial report. The external auditor assures the financial report user that the reported information fairly presents the financial position and results of operations of the organization in accordance with GAAP. MU Module 9 Part 2 Slide 22 Roles in the financial reporting process Executive management is the owner of the control environment and financial information, including the notes accompanying the financial statements and the accompanying disclosures in the financial report. The external auditor assures the financial report user that the reported information fairly presents the financial position and results of operations of the organization in accordance with GAAP. The internal auditor performs procedures to provide a level of assurance to senior management and the audit committee of the board that controls surrounding the processes supporting the development of financial reporting are effective. MU Module 9 Part 2 Slide 23 16

17 Internal audit s role in quarterly financial reporting The role of internal audit will vary from company to company. Internal auditors involved in quarterly reporting should have clearly defined roles. Internal audit should ensure that the company has a formal policy and documented procedures for the review and issue of quarterly financial reports. Internal auditors should encourage formation of a disclosure committee and should be represented on such a committee. MU Module 9 Part 2 Slide 24 Internal audit s role in quarterly financial reporting (cont d) Internal audit should review the quarterly reporting processes, disclosure committee activities, etc. Internal auditors should recommend improvements to such processes where appropriate. Internal audit should assess compliance with regulatory authorities (including, where applicable, the Sarbanes-Oxley Act of 2002). MU Module 9 Part 2 Slide 25 Internal auditing & controls Module 9 Part 3 Topic 9.6 Topic 9.7 Strategic Planning Strategic planning audit Case study MU Module 9 Part 3 Slide 1 17

18 The role of the corporate planning function Corporate planning includes long-term (strategic planning), medium-term planning and short-term planning. The purpose of corporate planning is to initiate and support the organization s directions, decisions and actions in order to improve its effectiveness and efficiency. MU Module 9 Part 3 Slide 2 The role of the corporate planning function Corporate planning includes long-term (strategic planning), medium-term planning and short-term planning. The purpose of corporate planning is to initiate and support the organization s directions, decisions and actions in order to improve its effectiveness and efficiency. Long-term planning determines the basic objectives of the organization and the strategies used to achieve them. Medium-term planning allocates resources to attain more specific objectives. Shortterm planning sets targets and goals for day-to-day operations. MU Module 9 Part 3 Slide 3 The role and main activities of the strategic planning function The main activity of corporate strategic planning is the development of the long-term (3 to 5 year) strategic plan for the organization. MU Module 9 Part 3 Slide 4 18

19 The role and main activities of the strategic planning function The main activity of corporate strategic planning is the development of the long-term (3 to 5 year) strategic plan for the organization. The steps involved include: Analyzing the environment and expected changes; Defining corporate objectives and priorities; Identifying and evaluating alternative approaches to achieve these goals. MU Module 9 Part 3 Slide 5 The risks of the strategic planning function The main risk is that goal congruence between all functions of the organization will not be achieved because operational plans for the various units of the organization are not designed to achieve the overall strategic objectives of the organization. MU Module 9 Part 3 Slide 6 Internal audit of strategic planning a case study Reading 9-14 Nut Case, Inc. Internal audit strategic planning audit program MU Module 9 Part 3 Slide 7 19

20 Past examination question on the internal audit of strategic planning Essay question June 2005, Question 4 (29 marks) MU Module 9 Part 3 Slide 8 Internal auditing & controls Module 9 Part 4 Module summary -- Learning Objectives Recent past examination questions Hints for assignment 5 MU Module 9 Part 4 Slide 1 Module 9 Learning Objectives 1. Describe the role, main activities and risks of human resources management in an organization. (Level 2) MU Module 9 Part 4 Slide 2 20

21 Module 9 Learning Objectives 2. Apply audit design concepts to develop an audit program for a risk-based internal audit of human resources planning; use ACL to analyze payroll data. (Level 1) MU Module 9 Part 4 Slide 3 Module 9 Learning Objectives 3. Describe the role, main activities and risks of the treasury function in an organization. (Level 2) MU Module 9 Part 4 Slide 4 Module 9 Learning Objectives 4. Apply audit design concepts to develop an internal audit program for a risk-based internal audit of the treasury function. (Level 1) MU Module 9 Part 4 Slide 5 21

22 Module 9 Learning Objectives 5. Describe the role of the internal auditor in the financial reporting process and regulatory reporting requirements in light of the Sarbanes- Oxley Act of 2002 and similar legislation and/or regulations in other countries. (Level 1) MU Module 9 Part 4 Slide 6 Module 9 Learning Objectives 6. Describe the role, main activities and risks of strategic planning in an organization. (Level 2) MU Module 9 Part 4 Slide 7 Module 9 Learning Objectives 7. Apply audit design concepts to develop an internal audit program for a risk-based internal audit of strategic planning. (Level 1) MU Module 9 Part 4 Slide 8 22

23 Recent examination questions Multiple choice questions: June 2005, Question 1(k) MU Module 9 Part 4 Slide 9 Recent examination questions Multiple choice questions: December 2005, Questions 1(i) and 1(k) MU Module 9 Part 4 Slide 10 Recent examination questions Multiple choice questions: March 2006, Questions 1(a) and 1(h) MU Module 9 Part 4 Slide 11 23

24 Recent examination questions Multiple choice questions: June 2006, Question 1(k) MU Module 9 Part 4 Slide 12 Recent examination questions Essay question: March 2006, Question 4 (part) MU Module 9 Part 4 Slide 13 Question 4: Your answer should provide a brief overview of the four phases in an internal audit. You should then set out the sources of information available to you at the planning phase. (This is covered in Module 4.) You should conclude with some of the criteria that you would use in this audit. For help with this, review Reading Question 5: The nature of human resources planning is covered in Topics 9.1 and 9.2. MU Module 9 Part 4 Slide 14 24