Easy Clean Case 5.2
Case 5.2: Easy Clean Co.
Internal Control Over Financial Reporting
Component Evaluation- Control Environment
Demonstrates Commitment to Integrity and Ethical Values
Rating: 3
Present: Yes
Functioning: No
Internal control deficiency description:
No written code of conduct or formal ethical standards
No processes in place to evaluate employees ethical standards
Tone at the top is minimal, with Doug and Phil appearing to have integrity, they work hard and stay late and the business is growing via “word of mouth”
Lack of formally reported goals and values
However, “open door policy” is a good supporting communication line
Sales people being paid on commission and negotiating special prices needs ethical values to keep employees ethical
Compensating Controls:
A lack of accountability enforcement from principle 5 could contribute to a lack of ethical standards being in place and adhered to.
A lack of structure in management and BOD oversight could contribute to the lack of code of conduct in place
A Major Deficiency: No
Exercises Oversight Responsibility
Rating: 3
Present: Yes
Functioning: Yes
Internal control deficiency description:
There are no board members independent from management (only owners and wives)
Very informal and weak oversight
Only one scheduled meeting a year
Board members, Doug & Phil, lack formal accounting training to have relevant expertise and oversight into certain practices
While it is a small business so large board is a future possibility, there appears to be a weak oversight of internal controls from the BOD standpoint
Compensating Controls:
A lack of segmentation between management structure and BOD oversight
No formal competence or accounting training for Board Members could lead to lack of effective and knowledgeable oversight
A Major Deficiency: No
Establishes Structure, Authority, and Responsibility
Rating: 4
Present: Yes
Functioning: Yes
Internal control deficiency description:
Smaller business
Internal Control Over Financial Reporting
Component Evaluation- Control Environment
Demonstrates Commitment to Integrity and Ethical Values
Rating: 3
Present: Yes
Functioning: No
Internal control deficiency description:
No written code of conduct or formal ethical standards
No processes in place to evaluate employees ethical standards
Tone at the top is minimal, with Doug and Phil appearing to have integrity, they work hard and stay late and the business is growing via “word of mouth”
Lack of formally reported goals and values
However, “open door policy” is a good supporting communication line
Sales people being paid on commission and negotiating special prices needs ethical values to keep employees ethical
Compensating Controls:
A lack of accountability enforcement from principle 5 could contribute to a lack of ethical standards being in place and adhered to.
A lack of structure in management and BOD oversight could contribute to the lack of code of conduct in place
A Major Deficiency: No
Exercises Oversight Responsibility
Rating: 3
Present: Yes
Functioning: Yes
Internal control deficiency description:
There are no board members independent from management (only owners and wives)
Very informal and weak oversight
Only one scheduled meeting a year
Board members, Doug & Phil, lack formal accounting training to have relevant expertise and oversight into certain practices
While it is a small business so large board is a future possibility, there appears to be a weak oversight of internal controls from the BOD standpoint
Compensating Controls:
A lack of segmentation between management structure and BOD oversight
No formal competence or accounting training for Board Members could lead to lack of effective and knowledgeable oversight
A Major Deficiency: No
Establishes Structure, Authority, and Responsibility
Rating: 4
Present: Yes
Functioning: Yes
Internal control deficiency description:
Smaller business