To: Pat Johnson
From: PWC
Date: March 12, 2003
Subject: Assessment of Exton Industries, Inc.
Dear Ms. Johnson:
I have recently reviewed the Control Environment Questionnaire for Exton Industries, Inc. After evaluating the evidence collected by our staff member, I have come up with an assessment of the fraud risks. From the evidence gathered, I have concluded that Exton Industries has a weak control environment. Overall, it will not do an effective job of preventing fraudulent activities.
While evaluating Exton Industries, I had to consider how the control environment would prevent misstatements arising from misappropriation of assets and fraudulent financial reporting.
The controller, CFO, and CEO review all financial reports before releasing them. Another area to consider was the assignment of authority and responsibility. Because three different people review the financial reports, it's easier to identify any mistakes that may have been made which in turn reduces the chances of misappropriation in fraudulent reporting. Through conversation with employees it was noted that proper responsibility and delegation of authority were assigned and the proper information appeared to be considered in developing responsibilities. Written job descriptions and standards also exist. Since proper responsibility and delegation of authority and written job descriptions and standards exist the, the chances of fraudulent activities are reduced.
Other issues to consider were management's commitment to competence and human resource policies and procedures. During the hiring process, management makes sure the potential employee possesses the proper knowledge and skills to carry out the job adequately. Upon hiring ...