Subject : Corporate risk management

i) Suggest five (5) practical recommendations that Health2Us board of directors should

implement to minimise the threats arising from having an autonomous account

manager.

(25 marks)

Introduction You are the management accountant of a large food company, Health2U Berhad (Health2U) Health2U produces a large volume of reasonably priced nutritious cereals in a variety of tavours for working and active adults. The company has a trade receivables Indger that is material to the financial statements containing four different categories of customer account. The categories of account, and the risks associated with them are as follows i. ii. iii. iv. The trade receivables listed uncer (1) to (v) are roughly evenly salt by both value and number Business Condition Due to the COVID19 pandemic, Health2U has suffered an increasing level of irracoverabic debts and slow payers in the past two years, partly as a result of a few small retail outlets becoming insolvent. The company has also cet several overseas accounts because of a mquirement for them to pay in advance. The management wishes to expand the averseas market and thus decided to allow overseas customers extended credit terms in the future. Smail retail outles. This accourt category represents for approximately two-thirds of the trade receivables account by number, and one-third by value Some of the customers pay promptly, while others are very slow. Large retail outlets fincluding oversea accounts) that sell a wide range of health food and supplement and represents 22% of the total receivablas. Several customer accounts in this category are large and overdue A Potential New Contract At the same time, Health2U are assassing a new contract to supply nutritious caraals to al prestigious gymnasium in Malaysia. If the nutritious carnal supplies tai to fulti the requirement set by the gymnasium, they will be subjected to a line large enough to put the firm in severe inancial dificulty. The directors determined that the gross risk is high impact, and then there is a high like ihood of product shortages and delays owing to excessive demand. The client is unwilling to reduce the penalty or to amend the terms and conditions of the contract, and that Health2U's internal controls is already at a high-quality level Chains of discount retail outlet-most of which are well-established high sweet chains. Again, some of the customer accounts are large and overdue; and Mal order companies that sell Health2U's nutritious cereals. There have been several large new customer accounts in this category, although there is no history of irrecoverable debts. Autonomous Account Manager Health2U has a functional organisational structure. Each of the sales, production, tinance and human resource department is headed by a cirector. Each director is supported by a tearn of senior managers. The functional structure serves as the basis for organising and supervising employees. An exception arises with the appointment of Haleem, who is an Account Manager in charge of Heath2U's dealings with its customer, Frex Co. Frex Co. insisted on the appointment of a designated account manager, Haleem, as a condition of placing regular arge orders with the company. Frex Co currently accounts for 20% of Health2U's sales by volume. Haleem is the designated point of contact on all matters between Health2U and Frex Co. He is responsible for all decisions pertaining to Health2U's business relationship with Frex Co including pricing) and is required to base all such decisions on the promotion of Health2U's commercial interests There have been a number of complaints from the functional managers sinca Haleem's appointment. These include several occasions when staffs received contradictory instructions. For example, Halcom has instructed the production department to give pronty to Frex Co.'s requests for large deliveries, despite the fact that this has caused celays for routine orders to other customers. Hakem has also told the staff in the credit control department not to press Frex Co. for payment even though the company had several overdue invoices. Ms Yanti, the Sales Director beleves that Heath2U could sell aven greater quantities to Frax Co. She believes that other large supermarket chains will start placing orders in the near future once Frex Co. has demonstrated that there is a demand for nutritious cereals. She further reminded the CEO that new account managers will have to be hired in the event that Heath2L starts to supply further supermarket chains Customer Order Process A huge volume of inventory is held in the distribution warehouse to cope with arders from retailers who expect celivery within 48 hours of placing an order. The customer order process. for the Distribution Division is as follows: ii. i. Health2U's customer service centre receives orders by telephone, post, fax, email and throu Internet ordering facility. The customer service centre checks the creditworthiness of customers and bundles up orders several times each day to go to the despatch department. All orders received by the despatch deparmant are input to Health2U's computer system which checks stock availability and produces an invoice for the goods. iii. Internet orders have been credit checked automatically and stock has been reserved 68 part of the order antry process carried out by the customar Internet orders automatically result in an invoice being printed without additional input. The cespatch department uses a copy of the invoice to select goods from the warehouse, which are then assembled in the loading cock for delivery using Health2U/s own fleet of delivery vehicles iv. vi. V. When the driver delivers the goods, the customer signs for receipt and the signed copy of the invoice is returned to the daspatch office and subsequently to the accounts department The management accountant from the Distribution Division produces monthly management reports based on the selling price of the goods less the standard cost of production. The control total inventory is compared with the monthly inventory valuation report and while there are differences, these are mainly the result of write- offs of damaged or obsolete stock, which are recorded on journal entry forms by the despatch department and sent to the accourts department. Considering the large volume of inventory held, the Distribution Division only conducts a physical stocktake once a year, at the end of the financial year. This has always revealed some stock losses, but they have always been at an acceptable level. During the stocktake both internal and external auditors are present and examine randomly selected stock items alongside the despatch department staffs. Due to the variety range of products stored in the warehouse, the auditors depend on the despatch department staffs to identify most at the products held. Introduction You are the management accountant of a large food company, Health2U Berhad (Health2U) Health2U produces a large volume of reasonably priced nutritious cereals in a variety of tavours for working and active adults. The company has a trade receivables Indger that is material to the financial statements containing four different categories of customer account. The categories of account, and the risks associated with them are as follows i. ii. iii. iv. The trade receivables listed uncer (1) to (v) are roughly evenly salt by both value and number Business Condition Due to the COVID19 pandemic, Health2U has suffered an increasing level of irracoverabic debts and slow payers in the past two years, partly as a result of a few small retail outlets becoming insolvent. The company has also cet several overseas accounts because of a mquirement for them to pay in advance. The management wishes to expand the averseas market and thus decided to allow overseas customers extended credit terms in the future. Smail retail outles. This accourt category represents for approximately two-thirds of the trade receivables account by number, and one-third by value Some of the customers pay promptly, while others are very slow. Large retail outlets fincluding oversea accounts) that sell a wide range of health food and supplement and represents 22% of the total receivablas. Several customer accounts in this category are large and overdue A Potential New Contract At the same time, Health2U are assassing a new contract to supply nutritious caraals to al prestigious gymnasium in Malaysia. If the nutritious carnal supplies tai to fulti the requirement set by the gymnasium, they will be subjected to a line large enough to put the firm in severe inancial dificulty. The directors determined that the gross risk is high impact, and then there is a high like ihood of product shortages and delays owing to excessive demand. The client is unwilling to reduce the penalty or to amend the terms and conditions of the contract, and that Health2U's internal controls is already at a high-quality level Chains of discount retail outlet-most of which are well-established high sweet chains. Again, some of the customer accounts are large and overdue; and Mal order companies that sell Health2U's nutritious cereals. There have been several large new customer accounts in this category, although there is no history of irrecoverable debts. Autonomous Account Manager Health2U has a functional organisational structure. Each of the sales, production, tinance and human resource department is headed by a cirector. Each director is supported by a tearn of senior managers. The functional structure serves as the basis for organising and supervising employees. An exception arises with the appointment of Haleem, who is an Account Manager in charge of Heath2U's dealings with its customer, Frex Co. Frex Co. insisted on the appointment of a designated account manager, Haleem, as a condition of placing regular arge orders with the company. Frex Co currently accounts for 20% of Health2U's sales by volume. Haleem is the designated point of contact on all matters between Health2U and Frex Co. He is responsible for all decisions pertaining to Health2U's business relationship with Frex Co including pricing) and is required to base all such decisions on the promotion of Health2U's commercial interests There have been a number of complaints from the functional managers sinca Haleem's appointment. These include several occasions when staffs received contradictory instructions. For example, Halcom has instructed the production department to give pronty to Frex Co.'s requests for large deliveries, despite the fact that this has caused celays for routine orders to other customers. Hakem has also told the staff in the credit control department not to press Frex Co. for payment even though the company had several overdue invoices. Ms Yanti, the Sales Director beleves that Heath2U could sell aven greater quantities to Frax Co. She believes that other large supermarket chains will start placing orders in the near future once Frex Co. has demonstrated that there is a demand for nutritious cereals. She further reminded the CEO that new account managers will have to be hired in the event that Heath2L starts to supply further supermarket chains Customer Order Process A huge volume of inventory is held in the distribution warehouse to cope with arders from retailers who expect celivery within 48 hours of placing an order. The customer order process. for the Distribution Division is as follows: ii. i. Health2U's customer service centre receives orders by telephone, post, fax, email and throu Internet ordering facility. The customer service centre checks the creditworthiness of customers and bundles up orders several times each day to go to the despatch department. All orders received by the despatch deparmant are input to Health2U's computer system which checks stock availability and produces an invoice for the goods. iii. Internet orders have been credit checked automatically and stock has been reserved 68 part of the order antry process carried out by the customar Internet orders automatically result in an invoice being printed without additional input. The cespatch department uses a copy of the invoice to select goods from the warehouse, which are then assembled in the loading cock for delivery using Health2U/s own fleet of delivery vehicles iv. vi. V. When the driver delivers the goods, the customer signs for receipt and the signed copy of the invoice is returned to the daspatch office and subsequently to the accounts department The management accountant from the Distribution Division produces monthly management reports based on the selling price of the goods less the standard cost of production. The control total inventory is compared with the monthly inventory valuation report and while there are differences, these are mainly the result of write- offs of damaged or obsolete stock, which are recorded on journal entry forms by the despatch department and sent to the accourts department. Considering the large volume of inventory held, the Distribution Division only conducts a physical stocktake once a year, at the end of the financial year. This has always revealed some stock losses, but they have always been at an acceptable level. During the stocktake both internal and external auditors are present and examine randomly selected stock items alongside the despatch department staffs. Due to the variety range of products stored in the warehouse, the auditors depend on the despatch department staffs to identify most at the products held