Javelin Enterprise Limited was incorporated on June 15, 1998 in the parish of Kingston with 10 million ordinary shares. The company was founded by Mark and Mary Javelin who started the company with $25 million. Since the date of incorporation, the company has grown into a household name and is now exporting to the wider Caribbean and Latin America. The company is the principal supplier of luxurious bathroom faucets, tiles, basins, toilet bowls, kitchen cabinets and other accessories used in household and luxury hotels. The company has been a dominant market player such that is now has approximately 65% of the local market share. Its revenues has climb consistently over the years. The company reported total revenues of $21.75 billion as per its latest audited financial statements for the year ended December 31, 2020. During this year, Mark and Mary who has been co-CEOs since the formation of the company decided to relinquish most of their day to day roles and appointed a new CEO as of March 1, 2021. However, they both are now elevated by the board of directors as co-executive directors as of March 1, 2020. One of their principal responsibilities entails providing guidance and mentorship to the entire management team given their extensive knowledge of the company. Mark is a chartered accountant and also a certified public accountant in the state of New York where he met Mary. In addition, he has an MBA from Harvard Business School. However, Mary in an engineer by profession and she holds a bachelors and a master's degree in electrical engineering from the Massachusetts Institute of Technology.

The newly appointed CEO is Frank Smith. Frank has extensive leadership experiences in the hospitality industry being the general manager of the some of the largest hotel chains in Jamaica, but has never held the helm of a CEO. Given his level of experience as per his resume and his performance while being interviewed, the board of directors as well as the owners decided to waive background checks on frank as well as verification of his MBA and Bsc in general management that he indicated was obtained from the University of the West Indies Mona. However, when asked to provide a copy of his degrees, Frank indicate that those were obtained in the late 1990s and were destroyed when his first apartment was burned entirely by fire. Frank's references also could not be verified by the board of directors and when asked, he indicated that his referees may have been living off the island. Consequently, the directors decided to move ahead with the employment of Frank because they did not want to disrupt the seamless transition of management and the CEO to be specific.

Frank subsequently employed Larry James as his chief lieutenant and his Chief Finance Officer. Larry has approximately thirty years managing large multinational entities as director of operations or chief human resources officer. Mr, James has a first degree in marketing from the University of West Indies and a Masters in Human resources management from the University of North Carolina. He also recently received a management and leadership certificate from the University of Stanford. Larry has never managed the accounting and finance departments of entities is the past. Nevertheless, Larry was tasked with the responsibility to rearrange and reconstruct the entity' internal control policies and procedures. While reviewing the current system Larry conducted an interview with the departmental managers which included the financial controller to obtain an understanding of the entity's environment including its internal control processes.

On a review of the company's expenditure cycle to ascertain if there are current weaknesses, he observed that Jackie Simms who is the company's chief accountant is responsible for analyzing the needs of each department on a monthly basis. After ascertaining the needs of individual departments she prepare a purchase order, which is sent to a supplier from the approved list. The entity's policy entails that all purchases must be placed from a supplier which is approved by management. On the receipt of purchase orders by the suppliers, the goods are normally received by a receptionist within five days unless there is a shortage of a particular item. On the receipt of the goods a receiving report is prepared by the receptionist, which is then filed in the receptionist office. The goods are then sent to the chief accountant who disperses the items to the relevant departments that are in need.

On the receipt of the goods, the chief accountant updates the accounts payable subsidiary ledger, then prepares a chequewhich is sent to the financial controller to be signed. The chief accountant then files the invoices according to the name of the suppliers in the cabinets awaiting the signed cheques from the financial controller. On the receipt of the signed cheques, Jackie logs the cheques in a hard cover book with the supplier's name for retrieval, then stores the cheque and the book in her filing cabinet. On the retrieval of the said cheque by the relevant suppliers, they are then asked to sign beside their names and the cheque number prior to the acceptance of payments.

The entity's policy is to provide in-house financial statements to management by the 14^th day of each month, which are to be prepared by Jackie, reviewed by the financial controller and approved by the entity's chief financial officer. After approval, the financial statements are then submitted to the management team for discussions on monthly basis. Prior to the preparation of the financial statements, Jackie is tasked with the responsibility to ensure that all balance sheet accountants are reconciled, which also includes the bank. Given Jackie's numerous tasks and the exigencies of the work load at the company the accounting staff, which includes Jackie are not required to take vacation. As a result, they are paid for their vacation days in the month of January of the subsequent year. Apart from Jackie and the financial controller, there are four other persons in the accounting department. These include, a senior accountant, an accountant and two junior accountants.

Jackie is also in charge of the month end inventory counts. At the end of the month, all inventories are counted by the departmental managers and their staff on the supervision of the chief accountant and her team of accountants. Jackie is a qualified accountant and has ten (10) years working in accounting departments across numerous sectors. All other members of her accounting team has a minimum qualification in accounting, which is at least a BBA. However, her accountant is currently pursuing level three in the ACCA

In addition to managing the monthly inventory counts, Jackie also processes the payroll of executives as well as all lower level employees. However, she is in charge of writing employment contracts for only her accounting staff and approving increases in their salaries. For all salary increase, the chief accountant, prepares a salary increase letter in duplicate, which one is given to the employee and the other is subsequently placed on their employment files. After filing the salary increase letters, she then accesses the payroll software then updates the change of rate in the employees' file, which reflects the increase in salaries. Jackie is also responsible for adding and removing all other employees to or from the payroll register after receivingtheir contracts from the human resources manager. However, for accounting staff, Jackie does not require approval to add or remove an employee from the payroll register.

As a result of her numerous tasks, Jackie has been complaining that she is tremendously overworked and is very tired due to lack of vacation. Therefore, Jackie is requesting to add at least two more employees to assist with the heavy work load which currently exists within her accounting department. She has also lamented to the financial controller on numerous occasions that her salaries needs to be at least double given her work load and she needs time to spend with her mother who is currently very ill and needs to have a surgery which currently cost more than $40 million dollars, which has to be done in the United States of America. In addition to her vacation requests, she is seeking a staff loan of $10 million to assist with her mother's surgery. Jackie also suggested to management that given her skill set, level of qualifications and experience she has been paid significantly below the current market value.

Despite her numerous requests and appeals to management, she was informed that due to COVID-19 and the financial distress that emanated from the pandemic, the company is currently not in a position to grant a staff loan nor is it able to employ additional employees to assist her in the accounting department. Consequently, she would be unable to take vacation for now until the entity adequately recuperates from the financial distress and is in a position to provide a cover to the current chief accountant.

Required:

a. Outline ten (10) weaknesses in the company's internal control system.            

b. Recommend at least one method of alleviating each of the weaknesses above 

 c. Using the fraud triangle, outline three risk of fraud in the case above. 

Answer rating: 100% (QA)

a Weaknesses in the Companys Internal Control System 1 Lack of Segregation of Duties Recommendation Assign different employees to handle the initiation authorization and recording of transactions to e... View the full answer