Memorandum
Thursday March 21st, 2019
TO: Management
FROM: David DePasquale
SUBJECT: Audit Plan for Robbins Network Services
Robbins Network Services has become a massive success in the automotive material
production industry. Due to their low cost of production, efficiency, innovation, and many patents for
products exclusive to RNS, the only thing that could be a detriment to the company would be
mismanagement of products and funds. As an internal auditor, one must first fully analyze the
business environment, transactions, risks, and many other factors of RNS. RNS is a sales based
business which sells automotive parts as a wholesaler. There is no production, but RNS does own
multiple patents for parts that they pay to be produced. They are also the exclusive sellers of these
items as well. As far as transactions, RNS has a strong accounting team in charge of AR/AP since
there are transactions so often. While the company overall is not at a very high risk, there are many
external controls that may affect business. If a newer, better project is invented/patented, electronic
technology could be a risk and that technology advances. If one of their parts is able to be used in
chain of parts that is not environmentally friendly, the entire car industry may be forced to make a
change which could make a SKU of RNS obsolete. With so many purchases being made and sales
coming in to the company, RNS needs several layers of internal controls to ensure that their business
is being accounted for properly.
The current state of RNS' controls is good, not great. At the moment, the company has a Sr.
Accountant who is in charge of the entire accounting team (10 members). Aside from the Sr.
Accountant, there is no one who is overseeing the numbers who can comprehend the accounting at
such a level. While the ownership of the company confidently puts their entire trust on this employee,
it is still a bit risky to have that person have no one overseeing them.
The transactional nature of the copmany requires a heavy duty amount of accounting. Not only
does RNS buy items in bulk from their manufacturers, they are also selling in bulk to retailers. This
means that there is AR that RNS requires from their retailers, and AR that RNS' manufacturers are
expecting. Conversely, the AP is frequent as well in all the same ways. RNS has bought entire
companies in the past but this is very infrequent. They also seek ownership of some patents to take
over sales of an entire line or item. That being said, this company is has volumes of transactions over
the course of a year.
At the moment, RNS is not at high risk as a company. They have very little long term debt and
they are more than capable of paying off any short term debt either on time or during the discount
period within 30 or 60 days. Since they are a wholesaler, they are constantly owed money from their
retailers, so the AR team is always busy. They are at risk for their retailers not paying them, but it is no
more risky than any other similar retailer in the industry. RNS is at risk when they take over
companies or purchase patents. They are using their own liquid cash to maintain and pay for their
own patents, and using even more money without a sure return is always risky.
In this industry, I fee that RNS is in need of a stronger General Manager and a controller, both
of whom can be involved with the Sr. Accountant and ensure that the position is being performed at a
high level and that all reporting is true and honest. While these two positions may be very costly to the
company, their value is immeasurable. This may also be seen as unnecessary and an action that
occurs before a problem, but a truly high functioning company should have these positions in place.
Ethically, there are several factors in play here. With environmental concerns growing rapidly,
there may be pressure for the industry to make major changes. For example, one of RNS' major
sellers is a piece of an exhaust system. If the industry is pressured into moving away from
combustion engines, this item would eventually become obsolete. Ethical issues within the company
are minimal. Aside from individual employee issues with ethics, the company operates ethically and
offers the most transparency possible in terms of accounting, sales, ownership of products and
patents, etc.
Current events affecting the automotive industry are significant. While therer are few that
would affect the risk of the company, the entire stability of the United States economy would affect
business greatly. If another recession hits, our company needs to have the liquid cash and other
assets to maintain and adapt during high pressure times. In terms of internal controls, there is no
foreseen event that would affect our way of doing business or our overall level of internal control.
David DePasquale