Internal Audit Report On The Audit

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1. The internal auditors report directly to the CEO and the CEO is the one who decides on the audit plan.
Control Weakness: The CEO sets up all the meetings that take place between the internal auditors and the audit committee and the director of the internal audit department doesn’t have outside access to the audit committee. Although the internal audit department is in charge of giving a presentation to the audit committee, the CEO must filter everything that is reported (including all documentation). Also, whenever there tends to be questions in regards to the receiving, processing or manufacturing functions, the CEO just refers the auditors to the Human Resources department, instead of going into detail on the issues that are raised.
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This organizational structure is useless and does not allow for effective internal control over financial reporting. The CEO can easily steer the internal auditors away from key issues. Objectivity of information is compromised because the internal auditors can simply be under pressure to misstate financial statement account balances.
Recommendation: The internal auditors need to report directly to the Audit Committee, and not the CEO. By doing so, the internal auditors will be able to work independently outside of management control. This will allow for the internal auditors to exercise due care about issues raised that can be conflicting with the CEO’s agenda. Internal auditors must have direct access to the audit committee so that they are able to report on significant deficiencies that arise and to be able to address these deficiencies with management. Furthermore, the overall control environment can be improved and risk assessment can decrease if there is that open communication between the auditors and management. 2.The machine operator’s pay is contingent on the number of spheres that go through helixination.
Fraud Risk: This is a fraud risk because the machine operator’s economic incentives can have a drastic influence on the production process. The operator can push green spheres through the helixination process and still can get paid
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