For this milestone, you will evaluate the following components within EarthWear Clothiers for gaps in internal controls and explain how each can be improved: control environment, risk assessment, information system, control activities, monitoring activities. The items below were found while reviewing internal control during your evaluation. Consider whether the item is a significant deficiency or a material weakness based on the other facts presented in the case and the materiality limits set in Milestone Two: There were several instances of transactions that were not properly recorded in subsidiary ledgers; transactions were not material, either individually or in aggregate. There are a significant number of intercompany transactions monthly. The transactions are related to transfers of inventory between warehouses and the allocation of marketing costs between the business units. The intercompany transactions are frequently material. There is a formal management policy that requires monthly reconciliation of the intercompany accounts; however, there is no process to ensure that the procedures are performed consistently. The result is a lack of timely reconciliations, and differences in intercompany accounts that are frequent and significant. Accounts receivable subsidiary ledgers are not reconciled to the general ledger account in a timely and accurate manner. There is a formal policy, however, there is no formal process or procedure that is followed to complete this task. The differences between the subsidiaries and ledger accounts required an audit adjustment of $376,000. There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of $3,578,000. Specifically, the following critical elements must be addressed: III. Internal Control: Evaluate the following components within an organization for gaps in internal controls, and explain how each can be improved: A. Control environment B. Risk assessment C. Information system D. Control activities E. Monitoring activities