Memorandum on Auditing Risks for Dudley Health Limited (DHL)

This memorandum, prepared by an audit manager at Samway Baker Fitzgerald (SBF), advises an audit senior on the audit risks associated with Dudley Health Limited (DHL). The memo addresses fraud at Pellegrino Shores, focusing on database access and completeness/accuracy assertions. It examines the new patient revenue system at St Neville’s, identifying detection and control risks. The report also covers Acuity Vison’s sales practices and associated account balances, emphasizing the importance of environment control and customer payment testing. Furthermore, the memo discusses account payable testing and the payroll system of Pellegrino Shores, including key assertions and internal control recommendations. The analysis provides a comprehensive overview of potential auditing issues and suggests strategies to mitigate risks and protect stakeholder interests.

Running head: AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Name of the Student:
Name of the University:
Author Note

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MEMO
Date: 18th September, 2019
To: Jek Porkins
Audit Senior,
Dudley Health Limited (DHL)
From: Mr XYZ
Audit Manager
Samway Baker Fitzgerald (SBF)
Subject: Letter of Advice regarding the various auditing risks
This memorandum is prepared to advise you about the relevant audit risk associated with the
different units of DHL. This is prepared to advise you as well as provide you the brief insight
of the auditing related issues, risks and other concerns of the different units of DHL. This
memo mainly have the five sections while each section discuss about the separate audit
related issues of the DHL. The first section of the memo discuss about the Pellegrino Shoes
including the key business risks and those accounts which is utmost probable to be
pretentious by scam at Pellegrino Shoes. Second section deals with the transition of new
patient revenue system by St Neville’s including audit risks, key question to inquire internal
audit as well as justification for adopting the audit for the revenue of the firm. Next part of
memo covers sale of medical supplies of Acuity Vison including key account balance and
associated assertions at risk, consequences for governor environment as well as efficiency of
customer payments testing. Fourth section will discuss about undertaken account payable

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test. While, the last section of the memo is all about the key assertion at risk in respect to
payment of overtime of Pellegrino Shores.
First case is that the fraud at Pellegrino Shores which is fully owned subsidiary of the DHL.
This is a retirement village located in Port Macquarie. It is observed that the firm dismissed a
senior staff member last month due to her involvement in the fraud. She used to reduce the
fees of number of resident and privately receive secrete payment from them. This fraud is
highlighted by her co – employees. Here, the key business of the Pellegrino Shores is present
in the authentication of accessing the resident data base. As she was only expected to apprise
room location but she also have the access to reduce the charges for the other services
provided to the residents. Hence, the biggest business risk of this fraud is associated with the
authentication of access to the resident data base. The need to develop such system in which
any staff member only be able to access as much as required as per his allocated job. While,
in this fraud case, mainly two audit assertions are involved those are completeness and
accuracy. As discussed above the senior staff member decreases the cost of the various
services provided to the residents, hence, there is high chances that the she must be omitted
various revenue related transaction to minimize the cost of the services for the resident.
Hence, the financial report prepared by the firm does not provide the complete information of
the financial transactions. Secondly, as her reduces the cost of the services and receive
privately other benefits, hence, transaction recorded in the accounting report does not
consider the actual balance of the firm as this is based on the tempered balances. Hence, the
completeness and accuracy are the two audit assertion which are present in the fraud case of
the Pellegrino Shores.
If we talk about the other subsidiary of DHL that is St Neville’s, then the main auditing
aspect of this subsidiary is patient revenue system of the this subsidiary. Here, St Neville’s
adopted new patient revenue system from ‘Home-grown’ to ‘Off the shelf’. The new patient

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revenue system is system of DHL and DHL remained involved in the entire switchover
period. This system mainly perform the function related to the billing for the patients while
calculating all subsidies and all. While, analysing the impact of the switching the patient
revenue system, it has been noticed that the due to the power surge all the data related to the
billing of patient for last two weeks need to re – entered. Secondly, it is observed the fresh
structure is not capable to calculate fee statement as per decided medical fund as well as
pensioner grant tariffs. System also faces the issues with those patients who have same
surname. It is also observed that the system is billing lower room rate to the patient without
any reason. Hence, in this case the main two audit risks are detection risk and control risk. As
the entire system is based on the system hence there is high chances that the auditor will not
able to sense the material misstatement before audit. Hence, to avoid this the auditor needs to
prepare the proper audit planning to detect the audit risk. While, the control audit risk is also
associated with the case as the new system does not calculate the subsidies and all properly
and charge the lower rate to the patients without any reason, hence auditor need to identify
the actual number associated with related accounts. For this the auditor need to ask some
question to the internal auditors those are the accuracy in calculating the subsidies by the
system and the fairness of the re – entered revenue transaction of the last two weeks along
with the evidence. The main reason behind choosing the above audit strategy is that the main
area which need the proper audit in this case is the calculation of the subsidies and all the
transaction those are need to be re – entered because of the power surge.
In respect of the Acuity Vison, the additional information is required about the sale of Acuity
Vison. Acuity Vison is another subsidiary of the DHL which directly sale its own range of
health materials. The sales crew of Acuity Vison is responsible for the all the sales and
receive bonus for sales founded on dollar value of the sale along with the fairly low salary.
The audit senior selected a sample of the customer payment for the medical supplies which is

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received by the firm just after the year end and find that the entries regarding this sale is all
entered in the general ledger and customers account. Here, the key account balances which
are affected by this activity are the sale of the firm, value of the debtors, bonus of the sales
team, gross profit and net profit of the firm for the period. As this sales is not for the last year
but it was included in the last year financial statement. Hence, this sale which is for the next
year increases the profit of the firm for the last year as well as this also increases the bonus
amount of sales management as this is also based on the amount of sale. Further, it is
suggested to the management of the DHL to implement the environment control in the firm
the management of the DHL needs to consider various aspects like integrity, assurance to
examine inconsistencies, evaluating accountabilities and assiduousness in planning structures.
Lastly, it is also essential to recognise effectiveness of the payment structure testing. The
payment system testing identifies the area of risk within the payment system which improve
the cost effectiveness in the payment system, speed up market as well as confirms effective
payment centres, which justify the condition of the today’s differentiated world. Hence, it is
suggested to properly perform the customer payment testing to avoid the above discusses
auditing issues and to safe gaud the profit of the firm as well as the interest of the
stakeholders.
The test performed by the senior auditor in respect to the account payable revels in the first
test that the two out of the fifteen selected creditors the balance are inflated and in second test
stated that the three out of twenty suppliers was not approved and the improper discounts had
been applied to them. Following table shows the all related information of the stated case of
DHL accounts payables: -
T
es
type of test key reasonableness of conclusion additional audit

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t assertion procedures
1
Examinatio
n or
Inspection
of Evidence
Completene
ss,
Accuracy
and
Classificatio
n
The provided conclusion for this
test is accepted because there was
no material errors were located.
The reasonableness of the
conclusion is totally based on the
material aspect as this is accepted
because this error does not
addresses any material
misstatement. Though, the auditor
also needs to consider the risk of
control in the sated case as the
management fail to properly
control their account payable.
The alternative procedure
of the auditing for this case
mainly involves four steps.
Those are planning, field
work, audit reporting and
audit review. While, the
planning step mainly
considers the two steps
those are preparation of
the required
documentations and
considering the goal of the
auditor.
2 Examinatio
n or
Inspection
of Evidence
Occurrence,
Accuracy,
Completene
ss and
Classificatio
n
In this test, the auditor concludes
as accepted because the error in
the discount claimed were
immaterial. Again the
reasonableness of the conclusion
is totally base on the materiality of
the error and accepted because it
is immaterial. Though, it needs to
be tested again as there is chances
This also involves the four
steps same like the test 1.
Those are planning,
fieldwork, audit report and
audit review.

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of involvement of material.
Lastly, this will discuss about the auditing issues in the payroll system of Pellegrino Shores,
as discussed above that the along with the full – time staffs, Pellegrino Shores also have a
significant total of spontaneous nursing, housework as well as administrative staff. They
often need to labour overtime on weekends as well as in night shifts as there is lack of the
sufficient staffs. Hence, the payment for the overtime rate and standards weekend and night
shifts commonly happened in the firm. Hence, the key auditing assertions in the above case
are the Accuracy, Classification, Completeness and Occurrence. The accuracy is about to
analyse that the amount of the overtime time and night shift allowanced to the staffs is
accurately consider in the books of account or not. The classification is about the over - time
as well as night allowances are properly classified and entered under the appropriate account
or not. Completeness assurance that all the relevant information of the payroll of firm is
completely reported by the firm in their financial report in the correct manner. While
occurrence assertions assures that the all payroll related accounting information reported by
the firm in financial report are truly happened or not. The suggested preventive internal
control for this case is segregation of duties. As the preventive internal control activities are
those activities which are performed by the management of the firm to prevent the assets of
the firm. Hence, the suggested preventive control for the above case is the segregation of
duties, in this all the related responsibilities will be perform by the separate individual and
expected that this will minimize the material misstatement in the payroll system of the firm.
Further, the suggested detective controls for this is control total. In this management used to
analyse the register of the employee attendance with the register of the visiting log register to
verify the actual working hour of the employee with the attendance of staffs.

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Hence, the fraud at Pellegrino Shoes mostly affect the revenue of the firm and the key
business of for the firm is associated with the authentication of the access of data. While the
audit assertions associated with the fraud in the accuracy and completes. The new billing
system adopted by St Neville also have several audit risk and issues. Acuity Vison have the
issues with the arrangements for paying its sales team as they try to maximize the sale to get
the bonus. While, the account payable testing of senior auditor and conclusion provided for
the test is appropriate but need some further considerations. Lastly, the payroll system of
Pellegrino Shores involves the preventative internal control as well as detective internal
control to straight report associated business risk.

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