Mind of Jacka: An Audit of the North Pole
Blogs Mike Jacka, CIA, CPA, CPCU, CLU Dec 22, 2022
[The following is a transcript of internal audit's report to the audit committee of Amalgamated World-Wide Enterprises Stretching Over Most of the Earth.]
The complete audit report regarding operations at Santa Enterprises is included in your audit committee package. However, because of the serious nature of the findings, we will now provide an overview of our audit and the related findings.
As you know, Amalgamated World-wide Enterprises Stretching Over Most of the Earth (AWESOME) purchased Holidays, Inc. at the beginning of last year. Subsequently it was found that the due diligence to be performed prior to the acquisition was, to put it delicately, absent. As evidence I remind the committee of the lawsuits regarding increased tooth decay as a result of activities related to Halloween Industries, the significant impact on production from the ironically named Labor Day LLC, and the questions still surrounding the ability of a rabbit to produce eggs for Amalgamated Easter Productions.
Therefore, after a more in-depth review of the subsidiaries related to Holidays, Inc., we agreed the greatest risk resided with Santa Enterprises, operated by one Mr. Kris Kringle. This was based on the organization's ill-defined business model and the location of its operations — a site so remote that we could find no evidence of its existence.
After a concerted effort to locate the headquarters — an effort that included sled dogs, polar bears, and numerous cases of acute frostbite — their headquarters were found to be located at the North Pole. We proceeded to perform an onsite review of operations. Following are our most serious concerns.
In an initial conversation with Mr. Kringle, we immediately noticed he exhibited the signs of several potential health issues. We were unable to determine his age. However, it is well known he has been the sole owner of the operation since its inception. Accordingly, he must be of a very advanced age. He is definitely suffering from obesity and, based on a discussion in which he admitted to a significant intake of cookies and milk once a year, may be a candidate for diabetes. He also smokes a pipe, and the redness of his nose may be indicative of an alcohol problem. Mr. Kringle is in denial regarding these health issues, responding when questioned, "Yes, but look how rosy my cheeks are." It is suggested that key-person insurance be purchased immediately.
Documentation within Santa Enterprises is, for all intents and purposes, nonexistent. When asked for support regarding the enterprise's activities, Mr. Kringle was only able to provide one item — a list he stated was used to determine where the organization's output would be distributed. This "Naughty and Nice" list is handwritten with numerous strikeouts and corrections. No controls exist to ensure corrections are accurate, nor to ensure that the proposed purpose of the list — controlling the reception of gifts — is actually accomplished.
Similarly, there is no documentation regarding expenses which, based on our physical inspection, would be quite significant. These include raw materials for construction of the toys that make up the company's primary product line, care and feeding of livestock used in transportation of finished products, upkeep and maintenance of the factory and associated living spaces (expenses made more exorbitant because of the harsh conditions associated with the site location), and salary and additional employee costs related to the extensive staff necessary for production and support activities.
Regarding the staff, there is no human resources department or any other function to serve in that capacity. Accordingly, we were unable to determine the true status of any of the staff — full-time, part-time, salaried, hourly, independent contractors, or indentured servitude. The inability to prove the status of the staff could result in violations and fines from the EEOC, NLRB, and an organization the staff referred to as "The Benevolent Order of Elfdom." One other comment regarding the staff: For some unexplained reason, they are all quite diminutive. With no records regarding hiring practices available, the company risks potential discrimination lawsuits from individuals who feel they may not have been hired because of their greater height.
No source of income could be identified. The simple fact that the operation has continued to function for a significant number of years indicates some type of income exists, but trying to determine the source of that income left the auditors baffled.
This leads to our greatest concern. The lack of documentation, the inability to discern a source of income, the remote and almost undiscoverable location, and the inability of anyone to answer the simplest questions about operations raises serious concerns about what may actually be occurring within the company. While we were unable to find any proof, all of the above is a strong indicator that the organization is a front for illegal operations.
We attempted to discuss these results with Mr. Kringle, as well as develop potential corrective actions. However, he responded to all issues and questions with nothing more than hearty laughter — laughter of such magnitude that it made his belly shake like jelly.
We see no option but for the company to immediately take over all operations — relieving Mr. Kringle of his responsibilities — and begin a program of close examination to determine how Santa Enterprises continues to exist, including what illegal activities may be taking place. Unless significant mitigating information is discovered, we feel the only option will be to shut down …
[The transcript indicates an interruption at this point. A knock at the door and a hurried discussion.]
What's that? A package has arrived for me? From the North Pole?
[There is the rustling of wrapping paper.]
No. it can't be. How did he know? How could he…I've asked for this for years. But no one could have known. And there's nowhere to get…. How did he…
Gentlemen, I have just received a signed first edition of Larry Sawyer's The Practice of Modern Internal Audit. And there's a note. "To the best CAE that has ever visited my humble operations. Work hard, work diligently, and work toward good. Kris."
[There is a long pause.]
Gentleman, I wish to retract my report. Santa Enterprises is one of the finest operations I have ever seen. Don't do a thing to change it. It does, indeed, have a sustainable business model — the bringing of joy to everyone during the holidays.
I think this meeting is over. Merry Christmas to all, and to all, a good night.
[End of transcript.]