Auditing and Audit Committee Policy
MEMORANDUM
Date : November 10, 2010
To : Alchemy Corp. (Aren’t we addressing this memo to our parent co., Alchem Corp.?)
From : External Audit Team
Subject: Internal Control Weakness and related fraud risk
After much research and time spent on understanding the inner working of Alchemy Inc., we have found some internal control weaknesses that could lead to potential fraud. Our audit procedures are designed to address internal control weaknesses and subsequent fraud risks in the most efficient and cost effective manner. We hope with our recommendation that Alchemy inc. will be able to minimize the risk of financial misstatement. We believe these concepts will have many positive impacts on the firm’s long-term profitability and efficiency.
The audit committee is not directly checking the financial statements for irregularities. The eighth tenant of the Audit Committee Policy reads that the audit committee must review financial statements for unusual transactions. Currently, the CEO, Chris Reddy, is performing financial statement evaluations without the oversight of the audit committee. The aforementioned control weakness lends itself to possible fraud risk. The CEO is under pressure to perform on behalf of the shareholders, and Mr. Reddy’s oversight of the financial statements creates an opportunity to misrepresent the performance of Alchemy Inc. Our recommendation is that the Internal Audit department sends the financial statements directly to the Audit Committee for review. The recommendation can be implemented at no additional cost to Alchemy Inc.
The Internal Audit department lacks the needed oversight and monitoring of Alchemy Inc. due to their limited scope and experience. The Audit Committee Policy indicates that the Internal Audit department should report to the Audit Committee. Furthermore, the Audit Committee is required to determine compensation and monitor the internal audit plan. Currently, the Internal Audit
Date : November 10, 2010
To : Alchemy Corp. (Aren’t we addressing this memo to our parent co., Alchem Corp.?)
From : External Audit Team
Subject: Internal Control Weakness and related fraud risk
After much research and time spent on understanding the inner working of Alchemy Inc., we have found some internal control weaknesses that could lead to potential fraud. Our audit procedures are designed to address internal control weaknesses and subsequent fraud risks in the most efficient and cost effective manner. We hope with our recommendation that Alchemy inc. will be able to minimize the risk of financial misstatement. We believe these concepts will have many positive impacts on the firm’s long-term profitability and efficiency.
The audit committee is not directly checking the financial statements for irregularities. The eighth tenant of the Audit Committee Policy reads that the audit committee must review financial statements for unusual transactions. Currently, the CEO, Chris Reddy, is performing financial statement evaluations without the oversight of the audit committee. The aforementioned control weakness lends itself to possible fraud risk. The CEO is under pressure to perform on behalf of the shareholders, and Mr. Reddy’s oversight of the financial statements creates an opportunity to misrepresent the performance of Alchemy Inc. Our recommendation is that the Internal Audit department sends the financial statements directly to the Audit Committee for review. The recommendation can be implemented at no additional cost to Alchemy Inc.
The Internal Audit department lacks the needed oversight and monitoring of Alchemy Inc. due to their limited scope and experience. The Audit Committee Policy indicates that the Internal Audit department should report to the Audit Committee. Furthermore, the Audit Committee is required to determine compensation and monitor the internal audit plan. Currently, the Internal Audit