CORPORATE GOVERNAN

Corporate Governance

ABC Company conducts business in the food sector. Except for one non-executive director, the board’s six members are all executive members. Although there is no internal audit department or audit committee at the company, the management of the business approves nearly all transactions. The CEO also serves as the board’s chairman. Because of the intense rivalry the company encounters in the marketplace, the management puts excessive pressure on staff to meet the company’s goals. The company’s business necessitates the hiring of personnel with high levels of expertise, education, and training. The human resources department does not have time to perform background checks on new hires due to a lack of these skills. Manufacturing, administration, finance, and human resources are the four divisions within the business. There is no manager for each of the four departments; instead, they all report to the company’s management. One accountant works in the finance department, recording all transactions and creating the financial statements. Administrative staff members share computers as a cost-effective cost-cutting measure, and all computers lack password protection for user convenience. The company lost inventory worth GBP 100,000 last year because the store area was not suitable to hold the goods. Additionally, the company’s safe was broken into in order to steal some checks and petty cash by three employees and their supervisor. The theft persisted until one worker felt he wasn’t getting his fair share of the funds and informed upper management of the fraud. They were all let go but not charged with stealing. Recent times have seen a deterioration in relations with stockholders as well. The chairman has been informed by a number of the significant institutional shareholders with offices in the City of London that the company’s performance needs to increase. The manager of the company has been keeping an eye on online chat forums and has seen that a number of small-holding shareholders are considering forming a shareholder action group to call for better performance and services. Additionally, he mentioned that stockholders do not receive the company’s Summary Financial Statements (SFSs).
Required:
What are the internal control system’s flaws at ABC Company?
• In each instance, please identify the missing COSO internal control component(s).
Task: Make some suggestions to the company’s BOD on how to enhance the internal control system.
Your responses must be organized as follows:
Lack of Justification for Internal Control Weakness in COSO Component Recommendation

 

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