Risk Management Essay

You are a CGA and have been recently hired to set up an internal audit department at an agriculture
company, Greenlee Inc. The company has developed a reputation for high quality products. This has
contributed to an increase in sales from $3 million four years ago to just over $10 million in the current
year. Due to this rapid growth, the company has expanded its operations much quicker than originally anticipated by management. The president, Janice, feels that adequate controls have not been put in place
to match the growth the company has experienced. As your first mandate, Janice wants you to audit the systems and practices associated with the production
process. The president’s main concern is regarding the production of Greenlee’s scientifically engineered
seeds. She is concerned that despite the majority of orders being filled on time there are cost overruns and
potential issues with respect to the quality of the seeds produced. Your preliminary work has determined that the production of each batch of seeds takes up to five days. All
production costs are recorded weekly in a computerized record system under the responsibility of Jin, the
production manager. Jin informed you that since Greenlee employs a variance analysis process for
evaluating production efficiency, the information in his system is completely independent of the main
accounting system. The process of reviewing product costs includes an analysis of actual versus budgeted
cost as established by Jin. Variance analysis is performed and reported to Jin on a quarterly basis. In addition, Janice has indicated that during this period of rapid growth, the company has not updated its
quality control methods nor increased the frequency of tests to adapt to higher volume and increasingly complex production runs. Janice is concerned that these issues could have an effect on Greenlee’s
profitability as well as on the company’s reputation. Prior to conducting the audit, Janice would like you...