Turbo, INC

Kelompok 1:
Halimatussakdiah
Feny Triagustina
M Rachman Miraz
Vilia Putri Sukmayahya
National Engine Corp

Turbo Inc.
Introduction

Sales : $29,803,000

Income After Tax :

$1,788,180
Introduction
Inspection

Machining

Assembling
40 Hourly
People Material
Handling

Shipping

Receiving
Introduction

Turbo Inc.

Turbochargers Spareparts
Organization
Corporate Discounts

• All the hardware and packing items and some

production chemicals, maintenance sup plies, and office
supplies were available under the National Engine's
corporate discount program.
• If Turbo purchased from corporate suppliers, saving
would be $30,354.40
• Purchasing from Korean suppliers cheaper than
suppliers in United States
 Sourcing

• Turbine wheels were difficult to

cast and no other supplier had
been able to make them reliably
• The company bought extra
bearing housings to help Castco
that makes Turbo Inventory’s
almost half of 2005 purchases
• Art didn’t obtained approval from
Doug because the items ordered
is part of producing turbocharger
Tooling

• Turbo pays casting vendor for Turbo equipments in

making new part number.
• John didn’t review Turbo’s equipment at vendor’s
location even when he feels that Turbo was overcharged
for patterns and dies.
• There’s rumor saying that the vendor use Turbo’s
equipment to produce castings that they sell to other
companies.
What operational deficiency(s) explain that buyers
were not aware of the corporate discount program?
What operational deficiency(s) explain that buyers were not aware of
the corporate discount program?

1. Lack of communication between parent and subsidiary. Turbo Inc. has

just been audited by parent company three years after acquisition,
especially in purchasing procedures.
>> Turbo, Inc. is not aware of National Engine head quarter’s list of
corporate discount
>> Turbo, Inc use MRP system which convert forecast sales and
purchasing requirements. If there is sufficient communication such as
monthly meeting between Turbo, Inc and the Parent, they both will fully
aware of purchasing material planning, including corporate discount.

2. Unintegrated purchasing system. There is no recorded and authorized

supplier list in system, so Turbo Inc.’s buyers are not aware of the
information of discount program.
In what ways could that deficiency(s) have been
discovered?
 In what ways could that deficiency(s) have been discovered?

Regular operational audit review, conducting below procedures:

Understanding business process of purchasing activities

Identify threat and controls related to purchasing

activities

Compare headquarter’s list against subsidiary’s list of

authorized suppliers (Bill of Material, term, price and
discount information)
 If National Engine elects to pay for casting molds for
its vendors what protective actions should be taken?
If National Engine elects to pay for casting molds for its vendors what
protective actions should be taken?

• Do periodic checks whether the casting mold process is in accordance

with what Turbo’s desire.
• To avoid Turbo is charged too much or too often for patterns and dies,
Turbo can request the report costs used for process casting mold.
• The equipment must be at Turbo’s location to avoid misuses of tools.
• If Turbo’s equipment at vendor’s location, Turbos can make an
agreement with the vendor that the equipment will not be used to
produce castings for sale to other companies. If the vendors breaking
the agreement a penalty will be charged.
• The existence of a control system for equipment access.
Art Gunn had ordered an unusually large amount of
bearing housings from Castco to help the firm
(Castco) weather financial difficulties. What issues
are present in this action?
Art Gunn had ordered an unusually large amount of bearing housings from Castco
to help the firm (Castco) weather financial difficulties. What issues are present in
this action?

• Excess inventory capacity

• Inventory purchases will damage company’s cash flow.
• Direct purchases of inventory without proper procedure will trigger
the bribery/gift to party that procures inventory.
Write the first sections of the audit report as you
think Ken should write them. (optional)
Write the first sections of the audit report as you think Ken should write
them. (optional)

1. Defficiency: Loss potential saving from corporate discount in material

purchasing
Corrective Action: Integrated purchasing system, regular meeting or
review between Turbo Inc. and The Parent

2. Defficiency: Excess inventory and disobedience of purchasing procedure

Corrective Action: Create and reinforce buyers to obey the SOP

3. Defficiency: Too much charge related to patterns and dies

Corrective Action: Clear agreement with vendor and periodically check
the patterns and dies process.
Further investigation related to equipment at vendor location
THANK YOU