ASHLY SHYRINE P.

ITCHON
Student

MR. DANIEL NEMESES ESPINA, CPA, MMA, CIA, CFMP

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Instructor
 Table of Contents
Name Pages Title page 1 Table of contents 2

Executive summary 3 Problem (Issue) statement

4-5 Data analysis 6-8 Key decision criteria 9

Alternative’s analysis 10 Recommendation 11

Action and implementation plan 12

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EXECUTIVE SUMMARY

The company began in the 1930s in North Carolina with just one little store and
grew quietly over fifty years, attracting a dedicated local following. A small group of
investors saw significant promise in CWO in the 1980s and bought a majority ownership
in the company from one of the founding family members.

Carolina wilderness outfitters, publicly traded retailer, sold gear and apparel.
Carolina wilderness outfitters’ headquarter in in Hendersonville. Individuals who lived
and breathed hunting and fishing drove the CWO culture in its early days. And it has
three divisions of product: 1) Hunting, 2) Fishing and lastly 3) Apparel. The three
divissions offered different products. Its targert customer is middle- and upper-class
customer with enough disposable income to purchase that special item to complement
their vacation or hobby experience. Hotline call from Betty Koster, who worked in
accounting depertment for eight (8) years. Age dicrimination termination of Betty.
Possible Internal control by Mark Tomkin.

In addition to Ramos, there were four other members of the internal audit team.
Risk exposures connected to CWO's governance, risk management, and internal
controls were assessed by the team. It evaluated risks for each division and region on a
regular basis and chose testing sites on a rotating basis. Internal controls at CWO
appeared competent, but not as strong as they could have been.

Two factors created problems in the internal audit, the first is the budget
replacement problem caused by lack of budget and the second is that Ramos was the
only person who was the CPA. TK & R Partners was the accounting firm that has audited
the CWO since its IPO. Roles were what caused the CWO revenue to decline for each
department. Some problems can be seen in the hotline call, 1) Age discrimination 2)
Asking employees to record accounting records without proper documentation.

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Problem (Issues) Statement

In the case study Carolina Wilderness Outfitters, Sue Ramos the head
of internal auditing, launched an investigation based on improper
termination, which turned up a new allegation of possible accounting
irregularities and potential fraud.

Ramos had received a phone call from a fired employee, Betty Koster,
who had worked in the accounting department for the past 8 years and
believed her discharge was due to age discrimination, a month before.
Calls from employees, as Ramos knew from her own experience, usually
result in an investigation, and should be handled as soon as possible to
avoid a lawsuit. After study of Koster’s employment records and discussion
with her supervisor, Simon Peel, Ramos understood that she needed
evidence from Koster about age discrimination, since having been the
oldest in department and the only person fired did not support the charge.
When Ramos called the employee again, Koster was visibly upset and
revealed new information about possible accounting procedures
noncompliance. According to her statement, sales representative Mark
Tomkin is accused of asking the accounting team to process entries
without the necessary approvals or documents. Koster was the only one
who refused to allow anything to be entered into the accounting system
without proper documentation. It is for this reason why she believes she
was fired.

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Mark Tomkin, the Texas region's head of apparel, had his own
dilemma. Knowing that CEO Ann Dawson was pushing for a big year when
the budget was being developed last year. For the year, Tomkin had
promised to a 10% rise in sales and profits. When Rocco Merli saw Tomkin's
plan, he was relieved that Dawson's communication had been received.
Merli thought 10% was aggressive, perhaps even too aggressive, but he
wanted to give Tomkin an opportunity to show himself.

Tomkin continued to press his players in the second quarter, but he

realized that the effort was not sustainable. He understood that by avoiding
writing off a rising amount of extra and outmoded merchandise, he might
meet his aim. He justified this by claiming that the sales lag was just
transitory and that the inventory would be sold later in the year. Tomkin
convinced himself that these activities were within corporate policy, and
he felt that more experienced managers performed similar actions on a
regular basis, and that successful managers were adept at adapting to
new conditions.

Tomkin concluded in the third quarter that he couldn't fulfill his targets
without falsifying accounting entries. He was aware with CWO's internal
controls, and he thought he could persuade someone to make the entries
because he was comfortable enough with the accounting support
personnel. He intended to lower the reported cost of goods sold by
recording as receivables the volume rebates that the CWO expected to get
if total purchases from some vendors for the year exceeded specific
thresholds. Tomkin despised the idea of deceiving his boss, but he also
didn't want to disappoint him.

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DATA ANALYSIS

These are the people who she should involve:

Betty Koster [Apparel Division Accounting Support Team (terminated)]

➢ To prove that her accusation is correct
➢ To gain further information regarding the matter
➢ As clues and hints for Ramos

Sue Ramos
➢ Responsible for the investigation

Mark Tomkin [Apparel head in Texas]

➢ asked Koster to make some journal entries about a volume rebate he
expected to receive, but he didn’t have the right documentation
Head of HR Department
➢ responsible for hiring and terminating

Mark Sentor, Norton Bell & George Li [Audit Committee Team]

➢ Ask for permission to continue
➢ Ask for their assistance as they are considered as the outsiders ➢
Audit committee has the obligation to ensure any fraud or potential
fraud is investigated

Rocco Merli [Head of Apparel Division]

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➢ Inquire him of how the salespeople claim their rebate
➢ Ask for his acknowledgement on what has been done by
Tomkins ➢ Consider the management style of Merli
Otherwise, these are the people should not be involved:

Top management
➢ Responsible for overseeing the company’s financial
statements ➢ The board members have fiduciary to protect
shareholders

Relationship between internal auditor, management, and audit committee

➢ -Deloitte (2010): “The Broken Triangle” - the disconnected relationship
among the three parties
➢ -Dual reporting structure of internal auditor

Ramos would do first:

 ➢ Check the documents to support the termination
allegation. ➢ Company’s past practices and workplace
policies.
➢ Call the vendors.
➢ Test controls.
➢ Do transactional testing on account receivables.
➢ Closely examine unusual significant transactions from previous
transactions.

Notify management
➢ She should help her company by bringing an organized, systematic
approach to evaluate and better manage risk, control and
governance processes.
➢ Gather all related evidence through surveillances, interviews or
written statement.

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➢ Documenting and preserving evidence, considering legal rules of
evidence.
➢ Determining the extent of the fraud.
➢ Evaluating the cause of the fraud.

Report to the Board

➢ The significant issues that it considers in relation to the financial
statements and how these issues were addressed.
➢ Submitting a draft of the proposed final communication on fraud to
legal counsel for review.
➢ Notifying senior management and the board when significant fraud or
erosion of trust occurs

Roles of audit committee

 ➢ To review the company internal financial control
➢ To examine and check the efficiency of the company internal audit
function.
➢ To examine the reliability of the financial statement of the company
and any formal announcements relating to the company’s financial
performance.

Not to Consider Dawson’s Reaction

➢ Uphold integrity as an internal auditor
➢ Report to audit committee regarding the improper documentation
issues
➢ Presentation of finding should only involve audit
committee ➢ Potential fraud
➢ Private and confidentiality will be affected
-Notify the management team to avoid misunderstanding after conducting
an investigation on her own.

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KEY DECISION CRITERIA

For some reasons, she must investigate further in order to collect more
evidence, To prove whether Tomkins's improper documentation of
transactions is caused by inevitable verbal agreements or intentional
omission of documentation, should investigate further, Code of ethics
(Integrity - take action if something not right), identify whether the Texas
Apparel segment represents relative significance in the risk assessment
process, issues that may have been ignored or overlooked in the past,
significant risk- investigate further, detect fraudulent activity, operational
issues, no proper documentation, check previous transaction, and should
improve the internal control system.

The reason why it needs to be investigated in order to eliminate fraud,

protect the company from any unethical practices in the management,
and eliminate any fraud cases. Another factors are to protect the interest of
the stakeholders and lastly, reliable and fair view of Financial Statement.

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ALTERNATIVE’S ANALYSIS

Measure the Materiality of the Missing Supporting Documents

• Consideration for usefulness of information
• Impact on the decision-making process of various persons and
institutions
• Opinion is made based on findings that have substantial influence

Cost effectiveness of audit

• Auditing process consumes considerable time and effort •
Scare resources - to carry on with the audit or consider other
alternatives
Materiality refers to Qualitative (Nature) and the Quantitative (Number)

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Recommendations

Notify the Management and Audit Committee

➢ Not to make any allegation without having supporting facts ➢ Head

of relevant departments should be informed for further actions to be
taken
➢ Responsibility to regularly communicate with the audit committee

These things must be considered as a recommendation because this is the

ways that I think must be follow in order to finally knows the truth behind all
those allegations and or with some discrimination if it happens in a way.

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Actions and Implementation Plan

Potential Solutions

➢ Remind Tomkin personally to have proper documentation and avoid

relying on accounting support staff for documentation
➢ Notify the management and audit committee after conducting an
investigation on her own
Ramos actions towards the issues

➢ Obtain the relevant figures for the documents omitted and

rebates ➢ Testing the appropriateness of journal entries
➢ Inquire Merli (Head of Apparel Division)
➢ The producers for salespersons to claim their rebate
➢ Request for supporting documents and proofs
➢ Process of documentation prepared

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