PSC Performance Based Auditing Risk-Based Approach

HO 5-1
State Department of Fruits and Vegetables

BACKGROUND

In reviewing the laws relating to the Department, its mission statement, strategic plan,
and other information provided by management and legislative staff, the following
primary Department objectives have been identified:

OBJECTIVES;
1. Increase the consumption of State grown fruits and vegetables through effective
advertising.
2. Increase sales of State grown fruits and vegetables within the State, the U.S. and
internationally.

Promotion and Advertising Objectives:

Obtain economic and effective advertising services.
Pay for only those advertising services actually received.
Provide the Department and management with accurate and complete
marketing information.
Maintain accountability for Department assets.

Charlie is completing the planning phase of the audit of Promotion and Advertising. At
this point, Charlie and his audit team have obtained the following additional information:

1. The current Executive Director has served for two years.

2. Statutes relating to the procurement of advertising services indicate that the

Department may select contractors on a competitive basis. The Department has
used the same advertising contractors for the last 5 years.

3. A large percentage of the amounts paid for advertising is paid to television networks
for time during which the Department’s ads were to have been broadcast. The
broadcast times are provided to the Department by the advertising firms and the
Department pays the networks directly.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-1

PSC Performance Based Auditing Risk-Based Approach

4. The Department maintains significant foreign currency balances that are used to pay
for advertising in foreign markets. These balances are susceptible to rapid changes
in value.

5. The Audit Section’s pending file for the SDFV contains several newspaper articles in
which several growers have questioned whether the direction of SDFV advertising
programs were consistent with grower needs and expectations.

6. The fund balance in the Fruit and Vegetable Advertising Trust Fund has been
declining over the last three years. The major source of revenues for the Fund is the
Fruit and Vegetable ‘bushel’ tax.

7. The State’s Department of Agriculture also has responsibilities relating to the fruit
and vegetable industry. The Department is responsible for, among other things,
inspecting the packing and processing plants and identifying and eradicating pests
and diseases.

8. The advertising contracts require that the amounts paid be based on the number of
hours actually worked by the firms on Department projects. The contracts provide a
schedule of hourly rates for each of the firm’s departments (e.g., clerical, graphics,
creative resources, partner, etc.). Invoices provided to the Department contain hours
charged by department.

9. Each advertising firm is responsible for providing quarterly marketing statistics

relative to the market share enjoyed by the State Fruit and Vegetable industry.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-2

PSC Performance Based Auditing Risk-Based Approach

REQUIRED

1. Evaluate the adequacy of the objectives.

2. Identify at least two risks for each Promotion and Advertising objective.

3. Identify at least five possible performance measures for Promotion and

Advertising.

4. Considering the objectives, risks and performance measures, develop the

potential scope for an audit of Promotion and Advertising.

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-3

PSC Performance Based Auditing Risk-Based Approach

Adequacy of the objectives:

Additional objectives:

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-4

PSC Performance Based Auditing Risk-Based Approach

Risks

Obtain economic and effective advertising services.

Risk:
Risk:

Pay for only those advertising services actually received

Risk:
Risk:

Provide the Department and management with accurate and complete

marketing information.
Risk:
Risk:

Maintain accountability for Department assets.

Risk:
Risk:

Additional Objectives and Risks:

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-5

PSC Performance Based Auditing Risk-Based Approach

Performance Measures

Performance Measure

Performance Measure

Performance Measure

Performance Measure

Performance Measure

The Institute of Internal Auditors, Inc., Altamonte Springs, FL © 2010 HO 5-1-6