#3 Internal Controls and Risk

 (c) Michael Kraten, All Rights Reserved.
Here is the link to the introduction of the game.
Here is the link to the first module of the game.
Here is the link to the second module of the game.
This is the third module of the game.
Here is the link to the fourth module of the game.

Purpose of Conversation: To assess whether the internal environment in the Vastarian subsidiary office of WOW is capable of supporting its own system of internal controls over cash disbursements. To discuss the prior accounting firm’s perception of the levels of tolerable risk and avoidable risk in regards to the possibility of inappropriate payments in the future.

New Information: John Aqua is a Senior Manager in the Enterprise Risk Management unit of Professional Review Services (PRS), the current public accounting firm of WOW that may be replaced by BFAC. John is extremely uncomfortable with his firm’s failure to detect the inappropriate recent payments. He is eager to avoid any professional liability for himself and for his firm; thus, he (privately) would prefer to lose WOW as a client than to continue to assume responsibility over client engagement services.

Choice a: Do nothing and proceed with project.
There is a 40% chance that a bribery scandal will shut down the project, resulting in massive litigation and loss of future business, causing $500 million in shareholder losses.

Choice b: Establish home office control over major cash disbursements.
The company will be required to spend $5 million to establish these controls. There is still a 20% chance of a scandal.

Choice c: Establish home office control over all cash disbursements.
The company will need to spend $5 million to establish these controls and an additional $5 million to address federal conflict-of-interest regulations. The chance of a scandal will be reduced to 10%.