Stan is an auditor for Cartman & Kenny, CPA. He has recentlybeen assigned to a new private client called Southpark Services, aprovider of Web management services. Southpark has clientsthroughout the United States. The company manages the clients’ Websites, keeping them up to date, resolving problems, and doing anyother programming or troubleshooting that their clients need.

The two Southpark owners are hands-on managers. They, along withthree other employees, provide the Web site management services fortheir clients. Although they don’t have access to their clients’books or bank accounts, they have the ability to alter the Website, and any data that flows through the Web site before it goesto the company or the customer. Southpark has one office managerwith an undergraduate accounting degree and one full-timebookkeeper.

In discussions with management, Stan learns that SouthparkServices “doesn’t bother” to maintain any processes specificallydirected toward good internal controls. When Stan asked why,management replied, “internal control is too expensive for us, andsince we are not a public company and Section 404 does not apply tous, we don’t see any value internal control can offer ourmanagement.”

Required:

(a) Develop a list of concerns that Southpark’s clients mighthave based on management’s attitude. Classify those concerns intotwo lists—concerns that affect the business and concerns that mightaffect their productive output, and thus the client’s businessoperations. Some of the concerns you identify might end up on bothlists.

(b) Suggest processes and controls that Southpark can implementto limit the risk of the items you listed in (a).

(c) How would Stan examine or test each of the processes andcontrols you list in (b)?