Alchemy Case Memo
From: The Alchemy Inc. External Audit Team
Date: September 23, 2008
Re: Internal Control Weaknesses Leave Alchemy Inc. Vulnerable to Errors, Fraud, and Abuse
Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some from Fortune 500 companies such as Enron, WorldCom, and Tyco—reinforced the need for a strong system of internal controls, and significantly increased the awareness of management, investors, the Congress, and the public of the importance of a strong system of internal controls. Further, without effective internal controls, management, as well as investors, have little assurance that fraudulent, improper, and abusive actions are being prevented or, if occurring, are being promptly detected with appropriate corrective actions taken.
Assessing the internal control environment, as well as the design of the controls themselves, continues to be an integral step in our auditing process. Without taking the time to understand and assess a company’s controls, not only would the firm not be in compliance with generally accepted auditing standards and the Sarbanes-Oxley Act of 2002, but we would also be unable to provide the comprehensive and reliable audits that the firm’s clients have come to expect.
The purpose of this memo is to discuss the results of the audit team’s assessment of Alchemy Inc.’s internal controls—including identifying missing controls, control weaknesses, and opportunities for fraud—and to recommend
Date: September 23, 2008
Re: Internal Control Weaknesses Leave Alchemy Inc. Vulnerable to Errors, Fraud, and Abuse
Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some from Fortune 500 companies such as Enron, WorldCom, and Tyco—reinforced the need for a strong system of internal controls, and significantly increased the awareness of management, investors, the Congress, and the public of the importance of a strong system of internal controls. Further, without effective internal controls, management, as well as investors, have little assurance that fraudulent, improper, and abusive actions are being prevented or, if occurring, are being promptly detected with appropriate corrective actions taken.
Assessing the internal control environment, as well as the design of the controls themselves, continues to be an integral step in our auditing process. Without taking the time to understand and assess a company’s controls, not only would the firm not be in compliance with generally accepted auditing standards and the Sarbanes-Oxley Act of 2002, but we would also be unable to provide the comprehensive and reliable audits that the firm’s clients have come to expect.
The purpose of this memo is to discuss the results of the audit team’s assessment of Alchemy Inc.’s internal controls—including identifying missing controls, control weaknesses, and opportunities for fraud—and to recommend