Objectives lesson 4 samson powder risks and audit

objectives. (Lesson 4)

Samson Powder – Risks and Audit Criteria
Following is an outline of the issues that could be included in the report. A sample
report is provided in good form after the outline.
a. Risks
• Risk that the transfer of production to South America may cause problems with
the local governments and ecological groups
• Risk that outsource vendors may use Samson’s technology for their own
production
• Risk related to labour relations due to the shutdown in Canada
• Risk that manufacturing costs will increase
• Risk related to transportation activities
- Currency risk
Category/issues controllability Risk wkness
will occur
Impact of
weakness
Total
COSO-Reporting:
Currency risk
1 9 5 45
COSO – Compliance
Local Govt & others (new
risk)
5 5 9 225
COSO Operations
outsource vendors (
greater/new
risk)
5 5/9 9 225/405
COSO operations
Union issues (potentially
remain)
5 5/9 9 225/405
COSO Operations
Transportation costs
9 9 9 729
Sales & Collections (loss of
reputation) Technology applied
incorrectly (potential loss in
quality of end product)
5 5 9 225
b. Techniques for mitigating risk
• Control: Design activities to prevent or reduce negative aspects and emphasize
positive aspects of transferring production.
- Phase-in the transfer of production and monitor/report costs/comparisons
• Diversify: Spread the risk by assigning different stages in the manufacturing
process to different suppliers.
• Diversify: Spread the risk by storing portions of current production in different
locations.
•
Control: Design all outsourced activities so that they can be carried out at the most
advantageous cost possible.
• Control: Design and manage activities to transport goods between South
America, suppliers, and customers at the lowest cost.
- Connect with a local lawyer/consultant who knows best how to deal with
local govt officials

c. Audit scope and objectives
i) To review the company’s risk management associated with the production of
metal powder
ii) To evaluate the project of outsourcing the production to vendors in South
America
iii) To assess the extent to which management has appropriate systems and
practices to address the risks associated with the production of metal powder,
whether the production is in-house or outsourced
4 d. Criteria
• Samson should have in place public relations policies to address environmental
concerns.
• The contracts with each of the vendors should include confidentiality clauses.
• Samson should have a plan in order to meet customers’ requirements in case of
strikes or other related problems with employees.
• The company should evaluate the costs of outsourcing in comparison to in-
house manufacturing.