April 5, 2023

Charles Vann
Chief Administrative Officer
Acme Publishing Company

Re: Management Letter – 23-001 Resale Media Procurement Review

Dear Mr. Vann:

The Office of Internal Audit has completed a review of the Resale Media Procurement process
as outlined in our 2022-2023 annual audit plan. The purpose of the review was to perform a
review of the purchasing process to ensure compliance with company policy and procedures.
The scope of the engagement was limited to the purchasing process and policies and
procedures for the period January 1, 2022, through June 30, 2022.

This review was performed in accordance with the International Standards for the Professional
Practice of Internal Audit, as promulgated by the Institute of Internal Auditors. Our fieldwork for
this review was completed on April 5, 2023. Specific audit objectives included:
 To determine that purchases are made timely to restock wholesale inventory
 To determine that purchases are made by an authorized purchasing agent
 To determine that purchases are made from a valid vendor.

In summary, except all purchases being made by an authorized agent, we found the system of
internal control is not adequate to meet the audit objectives listed above. Background
information, observations, recommendations and management plan of actions and
implementation dates are detailed below.

Background

Acme Publishing Inc. is located at 3455 Acme Lane, Greenville, NC 27858 and is a publishing
wholesaler that sells books and subscriptions to retailers in the continental United States. The
company has approximately 105 employees that includes both exempt and non-exempt
employees.

Observations, Recommendations, and Management Plan of Actions

Observation 1: Lack of Controls to Prevent Late Orders

A review of the control activities for placing purchase orders within four days from their
requisition date was completed. The review of 330 orders for the period 01/01/2022 to
06/30/2022 found fifteen purchases that were not ordered in a timely manner from their
requisition date. Fourteen of the fifteen late orders were completed by the same employee.
Per the Media policies and procedures, all purchase requisitions shall be acted upon by
procurement personnel within 4 days of the purchasing requisition being created.

Recommendation: Management should enforce the policy to all employees, and especially the
employees not actively complying and take action. Management should routinely check to
ensure that the policy, of orders being made with four days of the requisition, is being followed.

Management Plan of Action and Implementation Date:

Observation 2: Conflict of Interest with vendor VPP

A review of the control activities for conflicts of interest found a policy and procedure that
requires all employees to disclose potential conflicts of interests. It was found that there were 25
purchases made from a particular vendor for computers. All these orders were placed by the
same employee and requested by another employee. Additionally, both employees have the
same physical address as the vendor.

Per the Media policies and procedures, all procurement personnel are required to complete a
Conflict-of-Interest Disclosure form that details any family members or business associates that
are employed by approved vendors. Moreover, Acme Publishing is prohibited from purchasing
from employee-owned companies. The conflict-of-interest policy prohibits Acme Publishing from
purchasing from employee-owned businesses.

Recommendation: Management should review if the purchases in question where in the best
interest of the company. Moreover, management should take the appropriate personnel action.

Management Plan of Action and Implementation Date:

Conclusion

In conclusion, the Office of Internal Audit appreciates staff and management’s cooperation and
help with this review. We look forward to working with you in future endeavors. We will conduct
a follow-up review of management’s plan of actions in the near future.

Sincerely,

Sherri Mills
Chief Audit Executive

CC: Dede Jones, President/CEO

Phil Leonard, Vice President, Procurement
Audit Committee, Board of Trustees