Mejia, John Bernard C.

ELEC 2/ACT412  
Operations Audit/Internal Auditing  

MIDTERM EXAMINATION (Part I): Case analysis 

The internal audit staff of a consumer company recently completed an audit of the company’s
centralized  marketing department. The audit objective was to assess the effectiveness of the
marketing department in  contributing to the company profitability. The company’s three
divisions manufacture and distribute consumer-oriented electronics, sporting gods/recreational
products, and small household appliances. All  three divisions are dependent upon aggressive
marketing to retain their market share in a highly competitive  environment. The audit field work
identified, and management agrees with, the following: 
Sales Promotion 
1. The procurement of outside printing services is subject to competitive bidding if the dollar
amount  is greater than $4,000 and deadlines permit. Otherwise, the media manager selects
the printer based  on past experience. The contract is handled via the phone and the media
manager informs the  accounts payable supervisor that payment to the printer is authorized. 
2. Last year’s advertising expenditures exceeded the budgeted amount by 8 percent in all three 
divisions. An overall advertising strategy for the company’s products has not been
developed; each  divisional director plans its own advertising activities.  
3. Advertising activities are not studied for overall cost/sales effectiveness. The marketing
managers  believe that the time between placing ads and seeing any response is too long to
permit a useful  measure.  

Distribution Channels 
4. Although each product line is distributed through several channels, distribution costs are 
accumulated by product line; the product line manager decides what the appropriate channels
are  for each product within the line.  
5. The company uses multiple warehouse facilities and each product line uses an expediter to
release  products from each warehouse. To date, no storage or transportation studies have
been done to  ensure product delivery at the lowest possible cost.  
6. Product prices are determined by each division subject to committee approval from
headquarters.  Pricing strategy usually focuses on competitors’ pricing; other pricing
determinants are seldom  examined.  
Required: 

For each of these situations, prepare findings and the audit recommendations.  
Use the following format in preparing your response:
A. B.
 FINDINGS RECOMMENDATIONS

1.
If the amount of external printing services
exceeds 4,000 dollars and the deadlines are
met, it will be subject to competitive bidding;
however, the media manager will select a
printer based on his own experience, and the
contract will be handled only through a phone
call with the accounts payable supervisor
stating that contract payment to the external
printer is permitted.
1.
They should make the contract
through a written contract signed by both
parties, a vendor invoice with all of the
details, bank records indicating that the
payment was due and permitted, and the
signature of the person authorizing the
payment for the invoice.

2.
The company's advertising expenses
surpassed its assigned budget by 8% in all three
divisions. There is no overarching advertising
strategy in place to help the company reduce its
advertising costs. Instead of a single solid plan,
each of the three divisional directors has their
own advertising tactics that take too much time
and effort.
2.
The company's advertising strategy plan
must have been established or revised so
that each divisional director can follow it
and work together to meet their common
objectives. They must also follow the plans
in order to cut costs by reducing
unnecessary activities.

3. 3.
In terms of sales, the total cost- Managers should look into other topics
effectiveness of advertising activities is not and channels that can attract customers, as
examined. According to marketing managers, well as more techniques that can help them
the time between placing advertisements and improve sales.
receiving any response is a critical
determinant of an ad campaign's
performance. In this case, the firm will have a
difficult time developing an efficiency-
boosting strategy.. 
4. 4.
The management must establish the most Adequate management must be given to
suitable channels for their product lines and the distribution of your warehouse so that
the management and distribution of the your products are placed, and you need to
warehouse are not properly carried out. know who can help you expand your product
range and increase sales

5.
They do not monitor or study how items
are supplied at the lowest possible cost.
5.
They should record what's happening
in your business so that you can track
your goods easily and count your
inventory so that you can keep up with

6.
Pricing strategies of competitors are being
used and other pricing considerations are
rarely investigated.
your work.
6.
Rather than their competitors' prices,
the products should be picked based on
the company's costs and the selling
price that must be maintained..