Contents
AUI3701 ASSIGNMENT 3 SOLUTIONS 2021 ............................................................................................ 1
QUESTION 1 ............................................................................................................................................ 1
An organisation’s policy requires a sealed bid process to sell cars that can no longer be used
efficiently. ............................................................................................................................................... 1
Define the term “fraud”. ......................................................................................................................... 2
1.3 Explain the internal auditor’s responsibilities and role in fraud investigation. ................................ 2
Question 2 (30 marks)............................................................................................................................. 3
You are the internal auditor of Breakout Ltd, a new company whose main business is the
manufacturing of steel gates for all the prisons nationwide. ................................................................. 3
2.1 List the different risk categories. ...................................................................................................... 4
Identify the weaknesses in the control environment based on the given information; and describe
the risks resulting from the identified weaknesses. ............................................................................... 4
QUESTION 3 ............................................................................................................................................ 5
Question 3 (10 marks)............................................................................................................................. 5
You have been assigned to the procurement audit for Breakout Ltd. ................................................... 5
AUI3701 ASSIGNMENT 3 SOLUTIONS 2021
QUESTION 1
Question 1 (10 marks)
An organisation’s policy requires a sealed bid process to sell cars
that can no longer be used efficiently. In reviewing the sale of some cars that
had been declared obsolete, the internal auditor found that management had not always
compiled with the stated policy. Records shown that several cars on which major repairs had
recently been performed had been sold at “negotiated prices”.
Management assured the internal auditor that by carrying out some limited repairs and
negotiations with knowledgeable buyers, better prices had been obtained for the salvaged cars
than what could have been obtained using the required “sealed bid” procedure. The internal
auditor suspected, however, that there might be more involved than management indicated.
Further investigation by the internal auditor revealed that the vehicles had been sold to
employees, at “negotiated prices” that were below market value.
AUI3701 ASSIGNMENT 3 SOLUTIONS 2021 ............................................................................................ 1
QUESTION 1 ............................................................................................................................................ 1
An organisation’s policy requires a sealed bid process to sell cars that can no longer be used
efficiently. ............................................................................................................................................... 1
Define the term “fraud”. ......................................................................................................................... 2
1.3 Explain the internal auditor’s responsibilities and role in fraud investigation. ................................ 2
Question 2 (30 marks)............................................................................................................................. 3
You are the internal auditor of Breakout Ltd, a new company whose main business is the
manufacturing of steel gates for all the prisons nationwide. ................................................................. 3
2.1 List the different risk categories. ...................................................................................................... 4
Identify the weaknesses in the control environment based on the given information; and describe
the risks resulting from the identified weaknesses. ............................................................................... 4
QUESTION 3 ............................................................................................................................................ 5
Question 3 (10 marks)............................................................................................................................. 5
You have been assigned to the procurement audit for Breakout Ltd. ................................................... 5
AUI3701 ASSIGNMENT 3 SOLUTIONS 2021
QUESTION 1
Question 1 (10 marks)
An organisation’s policy requires a sealed bid process to sell cars
that can no longer be used efficiently. In reviewing the sale of some cars that
had been declared obsolete, the internal auditor found that management had not always
compiled with the stated policy. Records shown that several cars on which major repairs had
recently been performed had been sold at “negotiated prices”.
Management assured the internal auditor that by carrying out some limited repairs and
negotiations with knowledgeable buyers, better prices had been obtained for the salvaged cars
than what could have been obtained using the required “sealed bid” procedure. The internal
auditor suspected, however, that there might be more involved than management indicated.
Further investigation by the internal auditor revealed that the vehicles had been sold to
employees, at “negotiated prices” that were below market value.
