Corporate Governan

ABC Company trades in the food industry. Their board includes six members who are all executive members except for one non-executive director. The company has no audit committee and no internal audit department but there is a company’s manager who approves almost all the transactions. The CEO is also the chairman of the board. The company faces high competition in the market place that is why the company’s manager places too much pressure on employees to achieve the company’s targets. The company’s industry requires the appointment of staff with high skills, qualifications, and experience. However, because of the scarcity of these skills the human resources department has no time to conduct a background check on new staff. The company has four departments (manufacturing, administration, finance, and human resources). The four departments report back to the company’s manager as there is no manager for each department. The finance department includes one accountant who records all transactions and prepares the financial statements. As an effective cost reduction procedure, administrative staff share computers and for ease of use, all computers are not password protected. Last year, the company lost GBP 100,000 worth of inventory because the store room was not equipped enough to keep the goods. In addition, three employees and their supervisor conspired (i.e. collude) to steal petty cash and some cheques from the company’s safe. The theft continued until one employee felt he was not receiving his fair share of the money and reported the scheme to top management. They were all fired but not prosecuted for their theft. Relationships with shareholders have also become strained recently. Several of the large institutional shareholders based in the City of London have told the chairman that the performance of the company needs to improve. The company’s manager has been monitoring internet chat rooms and sees that several shareholders with small holdings are proposing to set up a shareholder action group which will demand improvements in performance and services. He also noted that the company does not send Summary Financial Statements (SFSs) to its shareholders.
Required:
• What are the weaknesses in ABC Company’s internal control system?
• Please mention what are the missing COSO internal control component(s) in each case.
• Give some recommendations to the company’s BOD on how to improve the company’s internal control system
•
• Task
You answers should be structured as follow
Internal Control Weakness Missing COSO Component Justification Recommendation

Corporate Governan

ABC Company trades in the food industry. Their board includes six members who are all executive members except for one non-executive director. The company has no audit committee and no internal audit department but there is a company’s manager who approves almost all the transactions. The CEO is also the chairman of the board. The company faces high competition in the market place that is why the company’s manager places too much pressure on employees to achieve the company’s targets. The company’s industry requires the appointment of staff with high skills, qualifications, and experience. However, because of the scarcity of these skills the human resources department has no time to conduct a background check on new staff. The company has four departments (manufacturing, administration, finance, and human resources). The four departments report back to the company’s manager as there is no manager for each department. The finance department includes one accountant who records all transactions and prepares the financial statements. As an effective cost reduction procedure, administrative staff share computers and for ease of use, all computers are not password protected. Last year, the company lost GBP 100,000 worth of inventory because the store room was not equipped enough to keep the goods. In addition, three employees and their supervisor conspired (i.e. collude) to steal petty cash and some cheques from the company’s safe. The theft continued until one employee felt he was not receiving his fair share of the money and reported the scheme to top management. They were all fired but not prosecuted for their theft. Relationships with shareholders have also become strained recently. Several of the large institutional shareholders based in the City of London have told the chairman that the performance of the company needs to improve. The company’s manager has been monitoring internet chat rooms and sees that several shareholders with small holdings are proposing to set up a shareholder action group which will demand improvements in performance and services. He also noted that the company does not send Summary Financial Statements (SFSs) to its shareholders.
Required:
• What are the weaknesses in ABC Company’s internal control system?
• Please mention what are the missing COSO internal control component(s) in each case.
• Give some recommendations to the company’s BOD on how to improve the company’s internal control system
•
• Task
You answers should be structured as follow
Internal Control Weakness Missing COSO Component Justification Recommendation