GROUP ASSIGNMENT - CASE 5.1 SIMPLY STEAM, CO.

Group 2
Course: Internal Control
Lecturer: Phạm Thị Ngọc Bích, MA

Control Strengths Weaknesses Rate

Environment
Component
1.Integrity and - Owners (Phil and Doug) are - High employee turnover 4
Ethical Values highly involved in running the + (p.137): Clerks are only with
business company a couple of years
+ (p.136): Doug is in charge of a and generally leave as soon
small sales force that goes out as they graduate
on leads to give estimates for - Salespeople are paid on
new jobs. Phil is usually out in commission basis (p.136)
the field managing the 20
cleaners. He makes
managerial and operating
decisions.
+ (p.137): Phil takes care of the
cleaning end of the business.
He usually trains all newly
hired cleaning employees and
explains what they need to
know and how to do the job.
+ (p.137): If something goes
wrong, Phil and Doug will
bring the problem up at the
next monthly office meeting,
try to solve the problem.
- The company has experienced
strong growth primarily
through “word of mouth”
which indicates the company
operates ethically and provides
a credible service
2. Commitment - Employees seem to receive - Most employees have little of 2
to Competence sufficient training and appear no previous experience
to understand their + (p.137): The accounting
responsibility department consists of seven
+ (p.137) “Mr. Day trains all part-time clerks and none of

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 new accounting help when
they are first hired”
+ (p.137): Phil usually trains all - Office staff experience
newly hired cleaning
employees and explains what
they need to know and how to
do the job.
- Office staff are largely made
up of college accounting
students (p.137)
3. Board of - The BODs are active
Directors or + (page 136 Dough[2]): Doug,
Audit one of the BODs, tells Mr.Day,
Committee the management, to reevaluate the
Participation accounting process at least once
every couple of months.
+ (page 137 Mr.Day[4]): Mr.Day
says that Dough will handle the
situation if he feels strongly about
the issue.
- BOD are flexible to meet when
necessary
+ (page 137 Doug[3]): If
something comes up and affects
everyone, they bring the problem
up at the next monthly office
meeting to be certain everyone
knows about it.
- BOD members are
knowledgeable about the
business and the industry
+ (page 136): The information on
the background of Simply Steam
is given by Doug shows that he
has a deep understanding of his
business.
4. - Open Door Policy
Management’s + (page 137 Doug[3]: We try to
Philosophy and prevent any concerns or other
them has an accounting
degree
confusion regarding their job
duties
+ (p.137): [TINA] “I got the
impression from the staff
that they’re not always
certain about their assigned
functions”, “The staff
mention that they’re
occasionally had problems
processing collections of
trade receivables”
- The BOD are not 3
independent of management
+ (page 136 Dough[2]): Doug is
in charge of a small sales force.
Phil helps with managerial and
operating decisions.
+ (page 137 Doug[2]): Phil takes
care of the cleaning end of the
business and also trains newly
hired cleaning employees.
- The BOD meetings are
normally scheduled once per
year.
+ (page 139 Doug[3]): “ We do
have at least one regularly
scheduled meeting each year,
and we have met on other
occasions as necessary.”
- The BOD is somewhat
informal and they are family
+ (page 139 Doug[3]): We do
have BODs of sorts. It isn’t
really all that formal, but Phil,
I,and our wives function as
directors
- Limited Understanding of 3
Accounting: Phil and Doug
have a little understanding of
2
Operating Style problems with the help by having
an open door policy so that if any
of the employees have questions
about what they are supposed to
be doing they can let us know or
ask for help.
- Doug and Phil are the only
people authorized to sign
checks, which can help prevent
fraudulent activities
+ (page 138) [DOUG]: “But Phil
and I are the only people allowed
to sign company checks”
- Focused Organization: The
organization is well run and
focused, which can lead to
efficient operations
- Engagement of CPAs: The
engagement of CPAs for a
financial statement audit signals
management’s desire to produce
fair financial statements, interest
in controls, desire to monitor
business risks, and desire to
continuously improve
5. - BOD (Doug and Phil) and
Organizational Office manager (Mr.Day) are
Structure actively involved in the
supervision of the day-to-day
operating process.
+ Mr.Day assigns of daily duties
and overview of each day’s
accounting record (p137)
+ Phil and Doug are in charge of
managerial and operating
decisions. (p.136)
- Operating policies and
procedures are determined by
the BOD or manager.
+ Special cut rate during spring
and fall has to subject to approval
accounting or financial issues
- Incentive Structure: The
office manager is paid a
percentage of sales, which could
potentially lead to conflicts of
interest.
- Lack of Formal Goals:
Management does not formally
specify goals
- Emphasis on Efficiency Over
Controls: Management appears
to emphasize efficiency and
output over controls.
- Issues with Receivables
Processing: Office employees
indicate there are problems in
processing trade receivables and
management does not view them
as an issue
- Lack of Physical Controls:
No separate physical controls
over important documents or
computer equipment
-Unfixed salary policy for 3
employees.
+Salespeople are paid on a
commission basis and can
negotiate special cut rates during
spring and fall. (p136)
+Office manager is paid a salary
plus a percentage of the total
sales each months (p136)
- The transaction procedures
are not clearly established and
strictly followed.
+ The sales system is not
finished yet and sometimes
altered by Mr. Day (p.136)
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 by Mr. Day or Doug. (p.136)
+ Mr. Day signs job commitments
obtained by salespeople to
indicate his approval
6. Assignment - Supervise and question
of authority and managers when necessary, and
responsibility give opinions on important
decisions
+ (page 136): Special cut rates
during the slow spring and fall
season need to be approved by Mr
Day (Office manager) or Doug
(Owner)
+ (page 136): Job commitment to
the client are also signed by Mr
Day
-Oversight the tasks:
+ (page 137 - Day) Follow the the
accounting record on a daily basis
-Communicate with employees
+They maintain the "open" policy
as a communication method for
employees.
+The managers are responsible to
address the conflict of interest
-Computer system is newly
installed and updated
7. Human -New hires receive immediate
Resource training
Policies and +Phill usually trains all newly
Procedures hired cleaning employees and
explains what they need to know
and how to do the job. (Page 137,
Doug [2])
-New employees in operations
are assigned to work with more
experienced employees.
+The new hire is teamed with a
more experienced worker and
assigned to a truck unit. (Page
137, Doug [2])
- No code of conduct 1
- No clear assignment of
authority and responsibility in
some departments
+ In accounting department, the
employees suffer some overlap
duties due to the heavy workload
(page 140, 1st para)
- The employees are not always
certain about their assigned
function
- Concurrent position:
+ Mr Day: lead a small sale
force, approve cut rates, sign job
commitments, train accounting
new employees, improve the
sales and accounting system, …
+ Phil: hire and train new
cleaning employee,
-New hires have little or no 2
prior experience
+None of Simple Steam’s clerks
has an accounting degree, but
all, except one, are college
students majoring in accounting.
(Page 137, Doug [1])
-Employee turnover is high.
+The employees are only with
Simple Steam a couple of years
and generally leave as soon as
they graduate. (Page 137, Doug
[1])
-Workloads can get heavy.
-Office employees have to help
“cover” other positions when
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 workload is busy.
+Despite the heavy workload,
everyone helps each other when
necessary and somehow the job
always seems to get done. (Page
137, Doug [1])
- Office employees experience
confusion regarding their job
duties and responsibilities.
+The employees are not always
certain about their assigned
functions. (Page 137, Tina [4])
+Doug says that one of the main
considerations is that the works
should be done by the people
who are available when it has to
be done, assuming they are
familiar with a task and capable
of doing it. (Page 137, Mr. Day
[2])
8. The - Employees are responsible for - The task assignment is not 2
organization the work suitable to their ability clear enough
holds + (page 137): Doug says that one + (page 137): Doug says that
individuals of the main considerations is that one of the main considerations is
accountable for the work should be done by the that the work should be done by
their internal people who are available when it the people who are available
control has to be done, assuming they’re when it has to be done… This
responsibilities familiar with a task and capable does leads to an overlap between
in the pursuit of of doing it. one person’s jobs and another’s
objectives - Not determine how to
measure work results
+ In cleaning department, Phil
usually hired and trained
newbies until he feels the time
is right → not clear (page 137,
Doug 2)

Overall - Management does not specify the competence needed for 3

particular skills.
- No evidence indicating that employees appear to have the
requisite knowledge and skills.
- Board of Directors not independent of management.
- Organization’s lines of authority and responsibilities are not

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 clearly defined.
- No clear assignment of responsibility and delegation of
authority for goals, objective and operating functions.
- Employees do not have the background and experience
necessary for job duties.
- Turnover rate is high.