Introduction of the company and the poultry industry.

Issues, assumptions and recommendations:

Financial perspective Management style Internal control

Conclusion

Excel Poultry & Meat Sdn Bhd (EPM) was established in 1998 as a small and medium enterprise (SME).
20 200

Actively involved in chicken farming and supplying of whole chickens.

High demand in chicken meat. E.g. Fast-food restaurants and Malaysian delicacies. Cheapest source of meat protein in Malaysia.

 Late 2008, operating cash was systematically running low problems in cash liquidity

RATIO Profit margin

2006 5.484%

2007 1.654%

2008 1.081%

Inventory turnover ratio Account receivables turnover ratio

16.677

36.067

28.459

4.307

3.396

2.881

The percentage of increase/decrease in the account balances:

Particular/Year Revenue Cost of sales Operating profit/(loss) Expenses

2007 0.567% 4.642% (69.670%) 37.500% 27.559% (51.613%)

2008 36.157% 36.950% (10.989%) 45.455% 60.494% 73.333%

Net profit/(loss)
Trade receivables Stock

(108.636%) (315.789%)

Trade creditor

62.162%

50.000%

Recommendations: 1. Increase the chicken production types

Organic eggs Meat Fertilizers

Chicken poop Sell to farmers Sell to handicraft makers Sell the chicks (breed more) Sell to other customers (hobby)

Feathers

Livestock

2. Increase revenue by expanding market share Sell to neighboring countries. 3. Offer discounts and send reminder to debtors

Increase in cost of sales and expenses.

Recommendations: 1. Reduce the feed cost : Mix the chicken feed with different types of ingredients. 2. reducing transportation cost and labor cost.

(B) Management Style

Autocratic Laissez-faire

Benefits
Incredibly efficient completely control over the operation

Drawbacks
Increase staff turnover and absenteeism One way communication between leader and subordinates

Group members focus on specific tasks

Benefits
Group member is given autonomy High satisfaction and productivity

Drawbacks
Possible damages to the company Few guidelines from the leaders

Benefits

Drawbacks

Group members are Time taken to make encouraged to share ideas decision is long and opinion
Increase the job satisfaction and productivity Develop a high sense of personal growth for employees

(C) Internal Control

Encik Selamat ~ Conflict of interest

Unethical actions

Assumptions : 1.En. Selamat used the companys funds illegally. 2.He instructed Pn. Azura to prepare the accounts in a way to conceal his acts.

Recommendations: - Clear set of policies and procedure - PCK Holding needs to monitor its subsidiary. - Whistle blowing policy.

BOD was reluctant to take action against Encik Selamat.

Recommendations: ~ Ms Choy : To persuade BOD to take action. - Conduct investigation. (3rd party) - Fiasco in EPM can lead to worse companys performance. ~ To report to PCK Holding.

No irregularities in debtors aging analysis

Mr Siva complained that figures in statement of accounts sent to him were incorrect

Paid cash to Encik Munir (a former staff in the finance department)

En. Munir had committed fraud (cash skimming) based on a few indicators: former staff already resigned. Encik Selamat was also involved in the case of En. Munir. (mentioned by the director)

Action

Explanations and example

Proper essential to ensure adequate accounting documentation records and source documents is maintained. To ensure effective documentation, the receipts should be: Pre-numbered consecutively . Prepared at the time of the transaction. Create a user-friendly format. Internal audit outsourcing Responsibility testing, monitoring companys policy and internal control. Eg: focus on Account receivable auditing -Purpose: to detect a variety of audit risks related to acc. receivables and to detect the possibilities of fraud.

En. Selamat crossed his boundaries as a General Manager. He instructed the marketing department to supply products to Cold Gold Sdn. Bhd. although it had exceeded the credit limit.

Recommendations
1. Segregation of Duties
-

Purpose: To help minimize risks and fraud, maximize inventory and supply protection.

Account Department

Credit Department

Marketing Department

2. Security Controls - To deter or prevent unauthorized access to sensitive materials.

Physical Control

Technical Control

Administrative Control

3. Authorization procedures
Customer

Credit Sales Cycle

Customer orders Take Order Approve Credit Approve orders Check Inventory Availability

Rejected Orders

Acknowledgement

1. Financial Perspective Increase revenue chicken products Increase revenue expand market share 2. Management Style Democratic Leadership 3. Internal Control Clear set of policies and procedures, whistle blowing policy. Persuade the BOD to investigate. Report to PCK Holding. Segregation of duties. Proper documentation. Internal audit outsourcing. Authorization procedures.

The main issue in this case study is EPMs weak internal control. Implications of the issue: Opportunities to commit fraud, business performance affected. Based on the recommendations that we had made to improve the internal control, in our opinion, there are 3 main things that should be carried out: - segregation of duties - proper documentation - hiring of internal auditors