Overview of Key Facts of the Case Study
Betty Koster, a former employee at Carolina Wilderness Outfitters (CWO) Apparel division accounting team for eight years, called the company’s ethics hotline following her termination. Sue Ramos is the head of the internal audit and handles special investigations in the company. Tel & Tel services manage the hotline program for CWO, including logging on all employees’ calls, conducting initial interviews, and handing over all call data to the head of the internal audit. From the report that Ramos received from Tel& Tel services, it appears that Betty was fired by her boss, Simon Peel, accounting support team manager, based on age discrimination. Ramos investigates whether the claims are valid and makes a reasonable decision.
Ramos set off the investigations starting with Peel, who claimed that he laid off Betty as she was incompatible with her coworkers due to the improved software in the company. Upon meeting Betty, she argued that the reason for her termination was her age since her coworkers were much younger than her. Despite Betty having no definite evidence of age discrimination, she demanded reimbursement for what she had been subjected to. Further interrogation saw Betty claim she was ignored and hated due to her stand on doing the expected thing in the company. On one particular occasion, Betty claimed that Mark Tomkin, Texas Region Apparel head, had asked her for journal entries which she objected to giving as Mark failed to have the right to documentation. On his side, Mark noted that he either received or failed to receive documentation since he would sometimes have verbal commitments with vendors.
Ramos realizes that the allegations concern irregularities in the accounting department, though not entirely justified. She is convinced that she should carry out further investigations. However, she did not have enough supporting data for the case; therefore, the CWO management failed to prioritize her case since the company was busy filling SEC for third-quarter financial statements. She is in a dilemma whether to notify the management or inform the audit committee or the external auditors.
The Internal Audit Department at CWO
The current internal audit department at CWO is relatively strong since its head Sue Ramos is knowledgeable with 25 years of experience. The internal audit has four members who work together to evaluate the risk exposures at CWO, manage them, and control the internal operations. The CWO internal audit has several pros that have a significant role in ensuring the company’s smooth running and enabling it to expand its operations all over. First, effective management in the organization has allowed the internal audit to identify setbacks in the company, such as minimal investments in the training of employees and systems, and act upon them.
Secondly, the head of the internal audit has vast experience in investigations. This is beneficial to the company since she has the needed resources to handle the complaints, especially those that emanate from the company’s ethics hotline. This is evident in Ramos’s case of a former employee who claimed to have been fired due to discrimination. Ann Dawson, the CEO of CWO, is optimistic that the internal audit will play a significant role in ensuring that the company continues to evolve gradually.
Nonetheless, there are factors at the CWO that limit the internal audit operations. Ramos is the only manager at CWO with CPA knowledge making her services often required on accounting issues. This distracts her from normal operations of her area of expertise since she spends time in other departments other than in the internal audit. In addition, an employee at the internal audit had gone on disability, and the management had not yet approved replacement on claims that it was not on a budget. Insufficient staffing in the internal audit drags their operations and may result in delays in management.
Additional Areas of Concern Impacting the Work of Internal Audit
External factors in the CWO affect the normal operations of internal audits, such as the company culture, organizational structure, and internal control systems. The CWO culture is propelled by hunters and fishers individually, making it impossible to differentiate their personal and professional lives. Ann pushing the managers and setting high goals for the internal audit is a disadvantage to them due to the insufficient resources in the department. Despite the urge to establish a performance culture, Ann should take note of the employees and available resources in the internal audit.
The organizational structure of the CWO is based on the goals of providing quality services and ensuring that they expand in all regions. The internal audit is entrusted with evaluating the risks of every region, providing the appropriate solution, and selecting the testing sites. Inadequate resources and human resources for the internal audit may fail to meet the company’s set goals. This is due to the numerous regions needing attention since the company intends to open a new store every couple of years. The internal control systems at CWO were reasonably robust but seemed adequate. Internal control ensures the effective operations of the company by controlling risks. When the internal control fails to prevent a risk on time, it means that the audit control department has a new role in managing the risk and ensuring a solution is found to minimize the cost for the company.
A Formal Recommendation to the Board of the Company on the Suitability of Corporate Governance Systems and Mechanisms at CWO
By establishing a corporate governance system at CWO, an accountable, transparent, and trustworthy environment will be created, thus ensuring further investment, hence, sustainable growth. For the efficient thriving of the CWO Company, the corporate governance rules and regulations must be adjusted to the reality in which the board will actualize them. The Board of Company at CWO should first ensure that it recruits enough competent staff for the organization, especially in the accounting department. This will lessen the burden on some employees, such as Ramos, whose services are sought after by various departments in the company. This will eventually increase workers’ productivity when they drive their energy in their area of expertise.
Secondly, it is necessary for the board to clearly outline the responsibilities and accountabilities of every employee in the organization, right from the CEO. The fact that the audit, compensation, and nominating departments are headed by Sentor, Quill, and Norton, respectively, makes it possible for the company to contact the right person in case of a problem. The individuals in the various committees should also have their roles well defined to avoid instances of blame.
Moreover, the board should ensure that good morals and integrity are esteemed. Compliance culture and respect should be established, and standards to be set for the employees and the vendors. This will minimize the fear of implication by executing policies for codes of conduct, conflicts of interest, and whistleblowing. Such resolutions will help in solving of company’s ethics hotline cases. According to Betty, her termination was mainly influenced by her strong standing of doing the right thing, resulting in hatred even from her coworkers. Proper ethics will help the employees to respect each other and practice integrity.
The Hotline Call Situation
After receiving the report from Tel &Tel services, Ramos acted on Betty’s case immediately. Ramos made sure to interrogate all the parties involved during the termination of Betty. This provided a lot of information that would be used to determine whether Betty was fired appropriately. Ramos’ experience in investigations made her unwound the irregularities happening in the accounting department. This is commendable for her since it will help control the risks that might have occurred if otherwise not detected, considering that some employees in the accounting department prefer doing work without relevant approval. Nevertheless, Ramos should have recommended the reinstatement of Betty as she probed further investigations on her case.
Way Forward
The head of the internal audit should consider notifying the audit committee of the matter at hand. She should discuss how far she has taken the investigations and welcome their input on the case. Additionally, she ought to remind Mark Tomkin that he should have the proper documentation and not rely on the support staff. Upon consensus on the best resolution with the audit committee, Ramos needs to present the case and the relevant findings to the senior management. The senior management will thereby make the most appropriate decision, which will be in the interest of Carolina Wilderness Outfitters, and ensure the company’s goals are met.