Internal Controls & Risk Management

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Question 2b

Introduction

Rail Co is a public sector rail company responsible for delivering passenger rail services within Beeland.

Rail Co is governed by a supreme governing committee known as the Rail Co Trust Board. This board is responsible to theMinistry of Transport for ensuring that the Rail Co board of directors make the best use of public money and maintaineffective and efficient services to the public. Figure 1 below shows the governance structure of Rail Co.

Figure 1

The National Audit Authority (NAA) of Beeland is a national government audit authority with responsibility for evaluatingand reporting to the government of Beeland on public spending, suggesting improvements to and benchmarking againstthe performance of a wide range of publicly funded organisations. The NAA also has a responsibility to advise on the valuefor money (VFM) obtained from publicly owned enterprises and on the performance of the boards of such organisations,including the senior executives of these boards.

Rail Co has in the recent past received negative publicity in the media and from a variety of other sources relating to itspoor services and performance. This has prompted the Minister for Transport of Beeland, to commission the NAA toundertake an urgent investigation of the issues facing Rail Co.

The following exhibits (1–6) provide information relevant to Rail Co.
– Exhibit 1: Website page for Rail Co leadership and governance.
– Exhibit 2: Transport report published in the Beeland Herald newspaper.
– Exhibit 3: Passenger survey results and performance analysis spreadsheet for Rail Co and its competitors (three years data).
– Exhibit 4: Rail Co board meeting minutes.
– Exhibit 5: Outline person specification and summary CVs for two candidates for the new chief executive position
– Exhibit 6: Ticket sales, passenger usage data and fraud analysis at stations in towns within Region 1 – Beeland network – prepared by the financial controller of Rail Co.

Question 2b:

You are an assistant auditor reporting to Alex Reed, the senior audit officer of the NAA.

Alex leads a team of assistant auditors and audit analysts and will be responsible for reporting the findings of the NAA’s investigations of Rail Co to a number of relevant parties, including the Minister of Transport, the board of directors of Rail Co and the Rail Co Trust Board.

As part of the investigation commissioned by the Minister of Transport to be undertaken by the NAA, one of the audit analysts working on your audit team has prepared a spreadsheet supplying a variety of data following the recent passenger survey results and using other relevant performance related information.

A few days later Alex Reed called you into his office to discuss Rail Co’s governance and internal controls. During that meeting he referred to the transport report in the Beeland Herald newspaper (Exhibit 2) and handed you a copy of the minutes of the latest board meeting held by Rail Co (Exhibit 4).

Required:
Alex has asked you to draft a letter to be sent to the chairman of the Rail Co Trust Board which:

(b) Reviews the effectiveness of the internal controls at Rail Co using evidence from the minutes of the latest Rail Co board meeting and any other suitable source and justifies that the chief executive of Rail Co is failing in his fiduciary duties to the trustees of Rail Co. (8 marks)

Professional skills marks are available for demonstrating scepticism skills in questioning the opinions and assertions made by the chief executive at the recent board meeting. (2 marks)

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