Midterm on Case Study

1. Explain in a couple of paragraphs why the crisis that Dominic Barton had to manage at McKinsey was potentially disastrous to the firm. Using ”A Note on Trust,” develop a ten point plan to improve the management at McKinsey and restore it to the company that James McKinsey and Marvin Bowers built..

Use attached two case studies as well as the Trust powerpoint to answer this question.

Bonus Questions: These can be short (few sentences)

1. Calculate Procter and Gambles latest gross margin?
2. Why did Google become Alphabet?
3. How did Rajat Gupta commit a crime?
4. Why do we use ratios to compare two companies of different sizes?

From the case study, identify 10 examples of bad corporate governance practices in Jessica Company. Show how each of them violated the requirements of the UK Code of Corporate Governance by referring to the name and number of the principle/provision of the code that has been violated. Please justify your answer by stating why you think each example is violating the code’s requirements. Your answer MUST be structured as follows

Assessment 1 – Case Study

Aim: The case study aims at testing students’ understanding of the role of corporate governance in today’s business, how to establish good corporate governance practices, how to maintain an effective internal control system and assess control risk, and

 

Case Study

Jessica Company Limited is a manufacturing company in the food industry. The company has been in business for six years. The company is aiming at achieving more returns in the coming years as well as strengthening its position in the market. You were appointed as a new member of the audit committee at Jessica Company. The company did not have an audit committee before but the new board decided to change the company’s strategy and approach to suit the company’s new aims. You were chosen to review the company’s internal control system and governance practices to identify any areas that need improvement.

You decided to start by having a look at the company’s governance structure and practices. You had a look at the company’s organisation chart that showed the following: The board of directors include 6 members all executive directors except of one non-executive director who owns shares in the company. The CEO is also the chairman of the board, and all board members are men. There is no internal audit department. The finance department has only one accountant and finance manager. The finance manager is also the operation manager and marketing manager. There is only one human resource specialist who is also the HR manager. There is only one person responsible for the IT in the company. There is an administration office run by two persons who are responsible for all the administrative work in the company. There is no manager for the administration office.

By having a look at the corporate governance report, you have realised that none of the board members has any financial expertise, and the majority did not serve as board members in other companies before. There is no clear description of the role of the board or how the performance of board members is being evaluated. There is also no mention of the remuneration of directors or the criteria for directors’ appointment. After reading the minutes of the board, you found the following: only few members are committed to attending the board meetings. There is no evidence that the board minutes were sent to other members who did not attend. The board members met only once a year and the meeting only lasted for 50 minutes. There is no clear description of the points discussed in the meeting apart from discussing the company’s aims and goals for next year and the establishment of an audit committee.

By having a tour at the company’s premises, you found the following: there is one small stock room for storing the company’s stock and the rest of the stock is placed outside the stock room in the corridor. There is one security guard for the stockroom who has been working for the company for years. The security guard is responsible for both keeping custody of stock and accounting for them. You decided to access the stock room and found that the room is not suitable for keeping the stock.

You then decided to talk to the human resource manager to understand more about the control environment.  The human resource manager provided you with an update on a number of matters. In particular, the shareholders are not convinced that many of the decisions taken by the directors recently have benefited the company, particularly in the short-term. For example, several hundred staff was recently made redundant as part of cost-cutting measures, mainly at the operation department, and many of the remaining staff are fearful that they will lose their jobs and morale within the company seems particularly low. Several staff also complained that top management puts high pressure on them to achieve the company’s goals. He explained that top management strives to meet analysts’ forecasts given the high competition in the market and the slowdown in economic conditions. He also mentioned that because of all this pressure, his department is struggling to find good staff and sometimes because of the work needs, he might not have time to check employees’ background or even ask for references from their previous employers. He also added that the company has received a lot of negative media attention recently. This includes a negative article in a newspaper which suggested that Jessica Company, along with other companies in its sector, was overcharging its customers. The article also criticised the company’s management for loss of £50,000 uninsured inventories because of unexpected fire in the stock room.  In addition, two years ago, three employees and their supervisor conspired to steal petty cash and some cheques from the company’s safe. The theft continued until one employee felt he was not receiving his fair share of the money and reported the scheme to top management. They were all fired but not prosecuted for their theft.

 

By talking to the finance manager, you realised that at the end of each month, the accountant accounts for all sales receipts issued during the month, traces each one to the related vendor’s invoice and acquisition journal entry, tests quantity or description of the merchandise received, and prepares the financial statements. The finance manager assured that the accountant in the finance department is very qualified to do the job and that is why he sometimes does not need to review his work. By having a look around the office, you have noticed that the sales invoices are not pre-numbered and you also found a set of empty cheques in the bin.

 

 

 

 

 

 

 

 

 

 

Case Study Questions:

(You MUST structure your answer as instructed below)

 

  1. From the case study, identify 10 examples of bad corporate governance practices in Jessica Company. Show how each of them violated the requirements of the UK Code of Corporate Governance by referring to the name and number of the principle/provision of the code that has been violated. Please justify your answer by stating why you think each example is violating the code’s requirements. Your answer MUST be structured as follows: (30 Marks)

 

Examples of Bad Corporate Governance Violation of the UK Code of Corporate Governance Justification/

Explanation

Cut and Paste from Case study (no citation required

 

Cut and paste from UK code of Corporate Governance (no citation required) This must be in your own words. A detailed explanation of the reason/justification WHY this is a violation of the code and your OPINION on the possible consequences to the company or individuals concerned. If you Cite in this explanation you must use Harvard referencing.
Answer 1.    
     
     
     
     
     
     
     
     
     

 

  1. Mention 10 weaknesses in Jessica Company’s internal control system. Relate each weakness to COSO internal control framework. In each case you should mention what is the weak or missing COSO internal control component. In some internal control components like the control environment and control activities, you also have to mention the specific control element that is missing, or weak. Show the implication of each weakness on the company’s success. Your answer MUST be structured as follows: (30 Marks)

 

Weaknesses in Jessica Company’s internal control system Missing or weak COSO internal control component Implications of weaknesses on Company’s success
     
     
     
     
     
     
     
     
     
     

 

  1. Mention 5 factors/circumstances that might increase the risk of fraud in Jessica Company. Categorise each fraud risk factor into motive, opportunity, or rationalisation to commit fraud. Also mention the type(s) of fraud that is/are more likely to be committed in each case. Please justify your answer. Your answer MUST be structured as follows: (20 Marks)

 

Factors/circumstances increasing the risk of fraud Categories of fraud risk factors  Type of fraud Justification/

explanation

       
       
       
       
       

 

  1. Provide 10 recommendations to help Jessica company comply with the requirements of the UK Code of Corporate Governance, reduce internal control risk, and reduce fraud risk. For each recommendation, please specify whether it aims to help the company comply with the UK code of CG, reduce control risks, or reduce fraud risks. Your answer MUST be structured as follows: (20 Marks)

 

Recommendation Aim