Memorandum

To:Senior Management, Overseas Management Department

From:Bradley J. Clifton, Audit Manager

Date:September 4, 2019

Re:Overseas Contractor's Working Conditions

In the annual audit review of our overseas contractor working conditions, we discovered with regards to one of our foreign contractors relating to employee working conditions.Part of our controls for the annual audit is to request System, and Organization Controls (SOC) reports from all vendors who contract with the company.The SOC report for XYZ Corporation, a vendor, was not available, therefore based upon our requirements, we performed a physical site review of the factory in India.XYZ Corporation is our most significant supplier of internal cellphone components; therefore, we needed to conduct due diligence audits before making any judgment as to the vendor' status.Henceforth, the physical review of XYZ Corporation in India is now complete, and the factory in India we discovered has below average working conditions for their employees.The factory is employing child labor and was requiring all of the employees to put in 15-hour workdays along with providing no benefits and paying substandard wages to their workers.

The practices of XYZ Corporation are not in line with the core values of our company.Our company is a socially responsible organization who not only take into consideration the obligations to our shareholder, employees, and customers our company focuses on community development along with the social and environmental consequences from our business activities. Our company has built into our contracts the moral clause that we will not conduct business with companies that do not share our companies core values and thus, violate our moral clause.Based on the audit findings, it will be in the best interest of our company to review our contract and initiate a period of probation for XYZ Corporation to allow them to make the appropriate corrections that were found in the annual audit.Furthermore, if XYZ Corporation is not able or willing to make the corrections within thirty days, then this will result in our companies, the decision to terminate our business relationship with XYZ Corporation.

Our company needs to stay committed to our strategic goals of increasing our revenues by 25% a year along with the need to maximize our shareholder value.We will attain these strategic goals without the sacrifice of our company core values.My suggestion is to contact all of our other vendors and make the determination as to which of the other companies would be in the position to increase their production of internal cellphone components over the short-term. Once the probationary period for XYZ Corporation is complete, and if they are not able to correct the issues found in the annual audit, then there would be no other choice but to terminate all future business endeavors with the XYZ Corporation.

Thank you,

Bradley J. Clifton

Audit Manager

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