Internal Control Weaknesses And Fraud Risks At Alchemy

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Alchemy Memorandum Date: October 19, 2014
To: Engagement Partner
From: 49ers: Imani Roberson, Isabel Gerbige, Megan Zang, Nicholas Mensah, Hope Bouldin
Subject: Internal Control Weaknesses and Fraud Risks at Alchemy, Inc. ______________________________________________________________________________ Introduction
The purpose of this memo is to discuss the facts and findings of the weaknesses within the Alchemy Inc. Company. This audit was conducted in October 19, 2014 by 49ers Audit Corporation. The team has conducted a thorough examination of Alchemy Inc.’s process through a careful review of information obtained from these interviews from the Machine Operator, Internal Auditor, Shipping Clerk, Receiving
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There have already been reports of the CEO modifying the Internal Auditors reports to produce a more favorable review by the Audit Committee.
Recommendation: The Internal Auditor should report directly to the Audit Committee. This will ensure that the CEO will not be able to wield too much power over the Internal Auditor and will not be able to keep unfavorable findings from the Audit Committee. This will give the Audit Committee a clearer picture of the functioning of Alchemy.

2. “Tone at the top” is very weak.

Control Weakness: CEO conceals information from the Audit Committee. The Director of Internal Audit also does not feel that the Audit Committee is friendly. Internal Audit has been steered away from the manufacturing process and the reconciliation process by the CEO. Although there is a code of conduct, a monthly newsletter and an open door policy according to the CEO, these efforts do not appear to be successful because of management override. Employees interviewed lack of awareness of these programs. All of these issues are signals of a deficiency of the Control Environment aspect of the COSO framework.
Fraud Risk: These weakness affects all levels of the internal control environment and other areas of the company. It shows that internal controls are not as important as meeting the company’s performance outlooks. If management does not openly display ethical conduct, the expectation of fraud and misappropriation

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