Internal Control Weaknesses And Fraud Risks At Alchemy

Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s

Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting 12.1 EyeMax Corporation . . Evaluation of Audit Differences

In this stage, the auditor should meet with company heads and discuss the processes of the internal accounting and also accept any recommendations from the organization.

Corporate fraud was the cornerstone for the strict implementation of the Sarbanes-Oxley Act of 2002 (SOX). SOX implements many compliance regulations, but one of its regulations, specifically Section 404, relates to an organization’s internal control procedures with the purpose of protecting organizational assets and investors’ interest. Consequently, organizations, big or small, private or public, are prone to fraud. SOX’s compliance of internal control procedures is developed through the Committee of Sponsoring Organizations of the Treadway Commission (COSO) known as the COSO framework that consists of the following procedures: control environment, risk assessment, control activities, information and communication and monitoring. Each variable address a layer that builds upon each other by

Potential for misstatement & fraud: Compliance with the established procedures and controls were found to be ineffective. The fraud reporting process, technically put in place does not serve its intended purpose. The ineffective control environment has created an attitude and tone across the company where errors and inappropriate behavior may be seen as acceptable, thus creating opportunity for concealing fraud and potential misstatements.

COSO established an internal control framework is placed into policies, rules, and regulations by numerous businesses and organizations to enhance control over their activities in order to move in a direction to achieve established goals and objectives. The five private sectors making up COSO include the Institute of Management Accountants, The American Institute of Certified Public Accountants, the Institutes of Internal Auditor, and the Financial Executives International. The Theadway commission formed

There seems to be a huge issue with risk assessment regarding their accounts receivable. It seems to the audit team that there could potentially be more accounts that need to be written-off. CSN may not be identifying and analyzing all the accounts that they have because some accounts are over 90 days due. That is a huge risk assessment concern. Also, there may be an issue regarding invetory because their inventory is higher compared to the rest of the industry and there were issues with invetory the year before.

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

When analyzing the control environment, fraud could have been detected if ING implemented some principle of a control environment. The organization demonstrates a commitment to integrity and ethical values. For example If ING had a high values and pursue to encourage honesty and integrity among their employees on a day-today basis. If these values were implemented and communicated effectively to employees plus enforced. This would have effect of increasing confidence in the design, administrations and monitoring of controls. This would have a result of reducing risk of material misstatement in ING financial statements.

COSO is the committee of sponsoring organizations of the Treadway commission and they were organized in 1985 to sponsor the national commission of financial fraud reporting (Coso). They were formed to help standardizes processes and provide leadership towards companies. They developed a comprehensive framework for guidance on internal controls. The COSO method involves three objectives in regard to controls. They are: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations (McNally, 2013).

“Audit committee members or their agents may proactively examine areas, functions, and personnel where collusive fraud risk is reasonably likely to be perpetrated,” (Zmags). The search for fraud, even if performed in the same location multiple times, may continue until the audit committee feels confident that they have ruled out the probability that fraud is prevalent. One of the biggest risks of fraud is management override of controls, requiring the extensive search for risk in, “journal entries and other adjustments and reviewing accounting estimates for possible biases that could result in material misstatements,” (Nysscpa).

The Audit Committee of the Board of Directors hired an independent public accounting firm, KPMG LLP, to audit PepsiCo’s internal control over financial reporting, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). PepsiCo’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s

Integrity starts with top management, and the more management supports and communicates the importance of ethical behavior, the more likely employees will internalize it as part of company culture. Management should establish and communicate a company-wide code of ethics (rather than a code for executives that just complies with Section 406 of SOX).

COSO is the Committee of Sponsoring Organizations of the Treadway Commission and it was established in 1985. COSO is a private sector that was sponsored by American Accounting Association (AAA), American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), Institute of Internal Auditors (IIA), and Institute Management Accountants (IMA). The scopes of COSO are dedicated for improving organizational performance and governance by effective internal control, enterprise risk management, and fraud deterrence. In 1992, COSO released the initial framework on Internal Control and the framework was built on five components in the following: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities.

COSO cites the control environment of the organization as the foundation of any internal control structure. The control environment reflects the overall attitude or actions of the board of directors, management, and others concerning the importance of internal controls in the organization. This overall attitude of upper management sends a message to the rest of the organization referred to as the “tone at the top.”For example, if upper management stresses high-quality products, a strong positive message is sent to the organization. This would create a strong internal control environment. On the other hand, if upper management has a reputation of looking the other way regarding policy violations, a negative message is