Citigroup’s Audit Committee Concerning the Firm’s Internal Controls
Week 4 Assignment - Case Study on Audit and Internal Control
Overview
In the United States, the management and auditors of publicly held companies must evaluate their internal controls annually. The purpose of the evaluation is to look for any control deficiencies. Doing so will help avoid any penalties such as the $10.5 million that the SEC imposed on Citigroup Inc. as a result of its internal controls failures. See the article from SEC.gov, Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls.
You are an external auditor hired by Citigroup to perform an audit. You will be reporting to Citigroup’s audit committee.
Instructions
Write a 2–3 page report for the audit committee in which you:
Critique Citigroup’s internal controls and the purpose they serve.
Distinguish between operation and design control deficiency.
Determine the reasons that led Citigroup Inc. to pay $10.5 million in penalties.
Recommend techniques that will overcome the weaknesses of Citigroup’s internal controls; justify the recommendation.
Use three sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment
A Report for the Citigroup’s Audit Committee Concerning the Firm’s Internal Controls
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A Report for the Citigroup’s Audit Committee Concerning the Firm’s Internal Controls
Citigroup’s weak internal control system and careless supervision permitted dealers to mismark positions for a long period, leading to the company losing many of its stockholders’ money and assets to the scams. According to the U.S. Securities and Exchange Commission (2018), in 2018, Citigroup agreed to pay penalties in settling the enforcement actions involving inaccurate bookkeeping, failure to supervise traders properly, and a weak internal control system. In short, the company lost money due to its subsidiary fraudulently loaning cash to Oceanografia and some dealers engaging in unauthorized trading.
A Critique on Citigroup’s Internal Controls and the Purpose they Serve
Citigroup devised and maintained inadequate internal controls that could not verify the invoices from Oceanografia before giving them loans. Due to this weakness, the company should have noticed many red flags which could have helped it discover the fraudulent activities. Although Citigroup had a control system, it was improperly designed; probably, the tasks in the accounting function were not segregated. The company needed to break down duties which an individual could complete, hence having numerous tasks that many people could complete. This action could ensure that no single person could control the whole process, thus lessening the possibility of errors and fraud.
Difference between Operation and Design Control Deficiency
Internal control deficiencies in a business occur because of errors arising from operations or due to design. Buslepp et al. (2019) state that design deficiencies happen when organizational controls fail to detect and prevent material misstatements reliably. On the other hand, operation deficiencies occur when institutions’ control systems are well-designed but cause material misstatements. Maybe the individuals who perform the controls are inadequately trained, or they fail to execute and document the steps that the law requires to operate the controls efficiently. The auditors should identify the deficiency’s origin, whether people are improperly trained or do not p...