Answer:
As the independent external auditor for ABC Hospital, I have an ethical responsibility to report any control deficiencies identified during the audit. An unlocked safe containing cash/checks is a serious internal control lapse, as it leaves the hospital's assets vulnerable to theft and misappropriation.
While this control failure does not directly impact the accuracy of the financial statements I am auditing, it represents a material weakness in the hospital's internal controls over cash.
The appropriate action would be to disclose this finding by including it in my written audit report to the hospital's management and audit committee. Specifically, I should mention that the lack of oversight and procedures for securing the business office safe presents a reasonable possibility for misstatement of the hospital's financial statements due to fraud or error.
I should then recommend that management promptly improve controls and oversight over cash handling, and implement procedures to ensure the safe is locked outside of business hours. As auditor, I do not have direct responsibility for fixing control weaknesses, but I have a duty to transparently disclose them.
Bringing this mater to management's attention in writing will allow them to mitigate the risks associated with loose safeguarding of cash and strengthen internal controls.
Step-by-step explanation:
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