John, the production scheduler at Fast Bike Ltd. (FBL), is responsible for ensuring that parts are available for the following week's production. The company builds 200 motor-scooters per day and usually has three to five days of orders waiting from various stores. All sales are to stores. John is in daily contact with suppliers, to take care of any problems that might arise in delivering parts. If there is a problem, John has to discuss the situation with the purchasing manager (PM). Last year some engines failed to arrive on time and the workers had to be sent home with no work for three days. This also caused FBL to be late in delivering motor scooters to its customers, and John was warned by his boss, the vice-president of the company, not to let this happen again if he wanted to keep his job. 

Last year, a new billing clerk received a warning from the vice-president for falsifying an invoice to show a lower-priced model than the actual one sent to a store owned by a friend. He had to repay FBL for the lost funds. The PM authorizes all parts purchases, and her assistant prepares the contracts for the suppliers and enters the contract details in a database that John can access. John checks the database and compares this to the orders expected (sales order database) for the next month, and then he contacts the suppliers one week in advance to see if there are any problems in meeting the agreed delivery schedule. 

Last week, one of the suppliers had a labor strike and shut down its plant for a week. John knows the parts are required for FBL's own production schedule next week and so he asked the PM to find an alternative supplier. The PM told John that they should wait a few days to see if the original supplier would be able to return to work, but John thought this was too risky. Instead, John contacted a supplier that FBL had used a few years ago and was able to get the parts sent to FBL in two days. John entered the purchasing contract into the company's database so that the company's accounting records would be correct. The vice-president congratulated John on taking quick action to protect FBL's business. 

Required: 

With case facts outline Five examples that describe FBL's control environment, explain why it is a control. Also, for each example state if the control is weak or strong and explain why. Be very specific in explaining the WHAT and the WHY.

Answer rating: 100% (QA)

The control environment sets the tone of an organization influencing the conscience of its employees It is the base for all other components of internal control providing discipline and structure Cont... View the full answer