Effects of Auditing in a Company? Essay
Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. Proper internal control not only ensures that the assets and records are safeguarded, but also creates an environment in which efficiency and effectiveness are encouraged and monitored. This report is mainly focused on internal audit and internal control system in a company.
In this case, the company is Kejora Bhd.. This report also focused on two main questions to be answered which is regarding on the evaluation of the strengths and weaknesses of Kejora Bhd.’s control environment. Another question is regarding on the factors in Kejora Bhd.’s control environment have lead to and facilitate one of Kejora Bhd.’s division which is the Fabricator Division’s general manager named Adam. This case is all about Kejora Bhd.’s rules of conduct and its internal control system. There are basically four rules of conduct which is integrity, competency, objectivity and confidentiality to be joint with the Kejora case.
What factors in KejoraBhd’s control environment have lead to and facilitated Adam’s manipulation of inventory?
Based on the task, the factor that lead Adam to manipulate the inventory because he wants to avoid reduces of bonus and salary. Kejora Bhd’s procedure is to give salary depends on high performance of the staff. This lead Adam to manipulate the inventory which is considered as fraud. Adam does not have competency knowledge to compete with the competitor and Adam not integrity in his job. Furthermore, the other factor that lead Adam to do fraud is Kejora Bhd does not have an internal audit to control the environment. It helps Adam to do the fraud without any risk as there are no internal audit to found out the fraud.
Morever, Kejora Bhd corporate intervention only occurred when planned result were not obtained. When Adam did fraud by showing constant or good profitability, so there won’t be corporate intervention occurred and it is a encouragement for Adam to manipulate the inventory. In addition to, Adam did fraud because he wants to get maintain performance to get compensator packages which can lead him to make fraud by increasing the performances constantly. The other factor is it easy to control the inventory as the inventory section is weak. This is because the no proper internal audit to maintain it. It can be see when Adam manipulates the inventory to show a constant profitability and avoid the salary and bonus. Besides that, the employee is not following the compliance which is the code of conduct.
Adam does not follow the law of audit. Moreover, Adam does not have loyalty and ethical value on his job. According to this, Adam attitude will affects other employee in the firm. Furthermore, there is no participation by the those charged with governance of the entity. The top management should always take a part in the entity. But in this case the board of directors and audit is not very active. When they are not concern about their management, Adam as one of higher position officer in the company make own decision which excess of his limit which consider as fraud. More than that, this entity does not have an organize structure to perform the business.
In this case, this entity does not have a proper internal audit and the board directors is not very active. Besides that, all the staff in the entity should be responsible in their authority. In this case, certain staff does not play their role properly as Adam does not play his role properly and this lead him to do fraud. The human resources not only responsible to hiring employee but also have to provide a practice to train employee. Eventhough the entity’s human resources have proper policies but Human Resources department forget to monitor employee which weak in code of conduct. Adam whom responsibly done his work for 7 years and finally lead to fraud because of weakness of management which give encourage to fraud.
Based on the case, there are several things that has to be put into consideration. First of all, the management and internal control as well as internal audits must be compliance to laws, procedures and policy of the company. In this case, Mr. Adam cannot manipulate the inventories as it is very unethical to his profession. Although the rationality of him doing that is because he is afraid that his salary and bonus will be reduced, he still must be compliance to the rules of conduct when doing his job. Here, we can see that the internal control is not very strong because the employees such as Mr. Adam are able to do things that can jeopardize the company’s reputation by altering its business records. Second, Kejora Bhd. must hire an internal audit to examine all the financial statements all the time. The board of directors and the audit committee should also be active and provide full participation on the management of kejora Bhd.
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