FIt Food
Issues in Fit Food Inc
Significant part of the behavioural displacement can be related to results control system that is in place. FFI is evaluating the divisional personals’ performance based on their achievement of Annual Operating plans; some of those are like
• Achieving 7% divisional growth rates
• Bonuses based on achievement (upto 150%)of annual operating plans and no bonuses on failure
• Stock options offered to corporate managers and divisional presidents
• Sean’s (founder & chairperson) call for better financial performance during those peak recessionary period(2008-2009)
These quantitative results controls can be related to those behavioural displacements. As a result presidents of Drink division and Cookie division have involved in those unacceptable fraudulent practices of aggressive revenue recognition, prepaying expenses and capitalising parts costs.
Since the CFO has the information about those fraudulent practices he should initiate the process of restating those prior year financial statements accordingly and those restatements require public disclosures. It is a serious issue for a listed company. Worse impacts would include lost of investor confidence, as a result share value deteriorates.
Suggestions : controls
Results Control
1. Instead of determining a target based on investor’s expectations, during the recession time company should have adjusted its targets according the economic condition. May be keeping the same market share or little above that could be a better option. It might create BUDGET SLACK. However that slack can reduce the tension, and stress for those managers and build an environment to change from there.
Since 2008 was the peak recession time the AOP ‘s growth rate has to be altered and it can be changed into sustainability
2. Controls should balanced with those quantitative and qualitative results oriented controls. In this case most of controls such as achieving 5% divisional growth and bonuses
Significant part of the behavioural displacement can be related to results control system that is in place. FFI is evaluating the divisional personals’ performance based on their achievement of Annual Operating plans; some of those are like
• Achieving 7% divisional growth rates
• Bonuses based on achievement (upto 150%)of annual operating plans and no bonuses on failure
• Stock options offered to corporate managers and divisional presidents
• Sean’s (founder & chairperson) call for better financial performance during those peak recessionary period(2008-2009)
These quantitative results controls can be related to those behavioural displacements. As a result presidents of Drink division and Cookie division have involved in those unacceptable fraudulent practices of aggressive revenue recognition, prepaying expenses and capitalising parts costs.
Since the CFO has the information about those fraudulent practices he should initiate the process of restating those prior year financial statements accordingly and those restatements require public disclosures. It is a serious issue for a listed company. Worse impacts would include lost of investor confidence, as a result share value deteriorates.
Suggestions : controls
Results Control
1. Instead of determining a target based on investor’s expectations, during the recession time company should have adjusted its targets according the economic condition. May be keeping the same market share or little above that could be a better option. It might create BUDGET SLACK. However that slack can reduce the tension, and stress for those managers and build an environment to change from there.
Since 2008 was the peak recession time the AOP ‘s growth rate has to be altered and it can be changed into sustainability
2. Controls should balanced with those quantitative and qualitative results oriented controls. In this case most of controls such as achieving 5% divisional growth and bonuses