Paper Example on Problems in Go-Go Internal Environment

Introduction

The problems within Go-Go reveals the failure by the management to design, implement and run a reliable internal control system. Go-Go weakened internal environment affirms failure by the management to establish improved controls to reduce regulatory noncompliance, inaccuracy of financial statements and asset loss. Firstly, poor screening is evident in the recruitment of its treasurer despite being a likely accomplice of, Ernie Eggers, convicted for perpetrating fraud. The fraud tag places his professional integrity and input questionable in the audit committee.

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The internal environment lacks auditors independence with the management issuing directives that appear to circumvent the objectivity rationale at will. Go-Go's audit lacks independence from the management interests highlighted by threats to higher another firm if they fail to replace the accelerated depreciation approach with the straight-line method. The internal team lacks the opportunity to carry out the audit freely and objectively without management arm-twisting and coercion.

The internal environment is devoid of impartiality and objectivity with the auditing platform likely compromised by parties developing the financial interest in the firm. The financial vice president oversees the internal audit team, thereby likely to coerce them to comply with biased directives. The settings leave internal auditors likely to conform to the management requests leading to subjective bias during performance evaluation. The management considers formalising the performance evaluation procedures is counterproductive. By doing so, it erodes objectivity, hence compromising the subordinate's unbiased mental attitude and judgement. The composition of Go-Go management features blood brothers, thereby likely exposing its decisions to compromise. Restricting the management authority to the brothers creates a setting likely to threaten the execution of unbiased audit responsibilities.

The internal environment suffers the violation of stewardship principle with some managers openly violating the company's procedures through contradicting directives. They occasionally contradict instructions and procedures issued on proper data security. Such noncompliance conduct by the management exposes the company database to potential pilferage, abuse and misuse. Equally, the company management is operating inflexibly in the implementation schedule for the enhanced network firewall. The pressure exposes the company to poor implementation in the employees' haste to comply with the tight schedule.

Go-Go suffers from principal-agency problem emerging from conflict of interest when the management pursues individual goals over shareholders wellbeing. The capital budgeting decisions feature short-termism with the management pursuing projects with shorter payback time. The decision reveals the desire for short-term profitability, thereby likely to overlook projects likely to maximise owners' wealth in the long-term.

The enterprise faces procurement fraud perpetrated by the purchasing department. The employees appear likely to compromise the procurement procedures and exercise apathy towards the vendor. The employees might engage in irresistible opportunities to gain financially at the expense of permitting poor quality supplies from vendors. Lastly, the purchasing department is led by a manager compromised by seeking to extend favours to the preferred vendor.

How COSO Internal Control Framework will Help Mitigate the Risks

The implementation of robust internal control systems is integral to ensure reasonable assurance of information integrity, its reliability and compliance with procedures and set policies. COSO Internal Control offers an integrated framework to create an acceptable system founded on a controlled environment and stewardship rationale (Graham, 2015). Its five-component framework provides participative channels for the management, directors and employees in a cyclic-check to enhance operations efficiency, financial reporting reliability and regulatory compliance.

The control environment sets a stewardship tone and expected conduct from senior management that reinforces integrity and ethical leadership. It offers active participation of the board of directors through oversight responsibilities. By doing so, it would eliminate the coercion and threats to auditors, thereby safeguarding their objectivity and independence. The risk assessment component will offer a dynamic and iterative process to identify and assess loopholes within the operations environment including interference with internal audit, procurement fraud and subjective evaluations (Graham, 2015). Their elimination is possible through risk assessment to unearth potential abuse of office, fraud and violation of operating framework.

It offers preventive and detective control activities that enhance approval, reconciliations, verifications and authorisations. The monitoring activities and iterative communication process provide opportunities to share and convey the intended message (Rittenberg, 2013). It will bring clarity and proper guidance to personnel during the execution of tasks and understand their responsibilities. The established channels will eliminate doubts, contradictions and compliance laxity stimulating procurement fraud.

References

Graham, L. (2015). Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework. Hoboken, New Jersey: John Wiley & Sons.

Rittenberg, L. E. (2013). COSO Internal Control - Integrated Framework: Turning Principles Into Positive Action. Altamonte Springs, Fla: Institute of Internal Auditors Research Foundation.