Question 3

Memorandum
Date: September 25, 2013 To: Chief Executive Officer From: Jenna Fairhurst, Chief Audit Executive Re: Independence and objectivity on the internal audit team at Tech Net, Inc. As you requested, I have prepared this memo to outline the policy and procedures in place to make sure that independence and objectivity are present in the internal audit operations. In addition I have also included a new policy that will be implemented in order to encourage independence and objectivity. The Institute of internal Auditors (IIA) defines independence as the freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner. IIA defines objectivity as an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made. The environment here at Tech Net, as you know, is very competitive between internal departments. The competitive nature makes it difficult for my team to perform our audits without the concern of bias. In order for my team to achieve independence and objectivity, they need to be able to do their work in an environment that allows them to be free from the pressures of the competing departments. They need to be confident in the work they are doing and can only do this if they do not feel the pressure of outperforming another department or colleague. The internal audit department does have policies in place to ensure independence and objectivity is attained while performing audits. They are as follows. 1. The chief audit executive (CAE) is to report functionally to the board and audit committee for and administratively to the CEO. 2. Internal auditors must avoid any situation where they are in a position of being unable to make unbiased decisions. If they find themselves in such a position, they are required to report it to the CAE immediately. 3. The Internal Audit activity must be independent, allowing the internal auditor to perform their audit objectively and without bias, while also avoiding conflicts of interest. 4. Internal audit staff may not accept any remuneration of any kind based on the costsavings of a specific department.

5. The chief audit executive will perform regular reviews of the internal auditors work to assure that the risk of independence and objectivity is minimal. I will also be implementing the following policy in response to concern about the length of time an auditor had been on the team before performing an audit on one of the competing departments. 1. Internal audit staff may not audit a department they have worked in, in the last 12 months or plan to work in in the next 12 months. These policies will help make sure that my team do not put themselves in a situation where they will be subject to bias. I believe if we work together we can eliminate any doubt that senior management has with my team regarding their independence and objectivity. I hope that with the implementation of this new policy, along with the existing policies already in place, there will be no concern over the presence of any bias from the internal auditing department. If you have any issues with the above policies, please inform me so that we can alter them in a way that they will be both satisfactory for the organization and my team as well as complying with the IIAs standards. Yours Truly,

Jenna Fairhurst
Jenna Fairhurst Chief Audit Executive