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MEM O R ANDU M
TO: ENGAGEMENT PARTNER
FROM: EXTERNAL AUDIT TEAM PACKERS
SUBJECT: ALCHEMY, INC. INTERNAL CONTROL WEAKNESSES AND FRAUD RISKS
DATE:
After much research as an independent external auditor, our team has
found numerous internal control weaknesses and fraud risks within Alchemy,
Inc. in accordance with the PCAOB Auditing Standard No. 2 for the 0scal
year end. Our audit procedures are designed to assess the internal control
weaknesses and fraud risks using the COSO framework. Listed below are
Alchemy’s internal control weaknesses and fraud risks along with our
recommendations that were prepared in order to improve the firm’s
profitability and efficiency in accordance with these issues.
1. Accountant’s CPA License
Internal Control Weakness – The internal Auditor got is CPA online,
which is doubtful. Also his other associates don’t have the right
experience to be able to carry out audits. By being able to practice
accounting without having a legit CPA and having a team without the
right quali0cations makes the overall audit work not reliable.
Fraud Risk – Without proper experience many errors can occur in the
financial statements and cause material effect on documents. As well
team members are not being able to confirm with AICPA standards,
because they don’t have the knowledge.
Recommendation – A way to reduce people without qualifying
requirements to be able to work here can be that management take a
closer look into documents and verify references of applicants. As well
do semiannually evaluations of each individual employee in all of the
departments.
2. Access to Departments
Internal Control Weakness – Everyone in the company has access
to any department with the use of only one keycard. Users from other
departments are not limited to only that department and so can
access information from other departments. This is a weak control of
being able to safeguard assets.
Fraud Risk – By having unlimited access to each different
department employees have an “opportunity” with a weak internal
control to gain access to assets. This can lead to shortage of inventory
or even alternations of documentation.
Recommendation – By placing physical controls over the security of
the assets you can prevent and detect fraud. Add different key entry
cards to each individual department. As well keep a detail record of
all incoming and outgoing personals, assets, etc.
3. Assistant’s duties
Internal Control Weakness – Ron has a lot of different jobs
associated with his title as “assistant.” The CEO Chris gives a lot of
his duties to his assistant to complete and this is a violation of
separation of duties.
Fraud Risk – By not having a separation of duties one can act in
Direct-e7ect Illegal Acts causing material effect on dollar amounts in
the financial statements. With the assistant having more control in
management operations and can have use this in acting in fraud
