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Fact Pattern: The legislative auditing bureau of a country is required to perform compliance engagements involving organizations that are issued defense contracts on a cost-plus basis. Contracts are clearly written to define acceptable costs, including developmental research cost and appropriate overhead rates.
During the past year, the government has engaged in extensive outsourcing of its activities. The outsourcing included contracts to run cafeterias, provide janitorial services, manage computer operations and systems development, and provide engineering of construction projects. The contracts were modeled after those used for years in the defense industry. The legislative internal auditors are being called upon to expand their efforts to include compliance engagements involving these contracts.
Upon initial investigation of these outsourced areas, the internal auditor found many areas in which the outsourced management has apparently expanded its authority and responsibility. For example, the contractor that manages computer operations has developed a highly sophisticated security program that may represent the most advanced information security in the industry. The internal auditor reviews the contract and sees reference only to providing appropriate levels of computing security. The internal auditor suspects that the governmental agency may be incurring developmental costs that the outsourcer may use for competitive advantage in marketing services to other organizations.

Management has asked the internal auditor to recommend monitoring controls that management could establish to provide timely oversight of the information systems contract. Which of the following is the least effective monitoring control?

A.Require monthly internal reports summarizing overhead rates used in billings.
B.Require monthly reports by the outsourcer of total costs billed and services rendered.
C.Use internal auditors to investigate the appropriateness of costs, as part of a yearly engagement to evaluate the outsourcer.
D.Randomly investigate selected cost accounts throughout the year to determine that all the expenses are properly charged to the governmental unit.