Introduction: New Phone, Inc. Background
Creating an efficient control environment within an organization is not an easy task, as it presupposes that every component of the organization’s framework should be compatible with the financial audit strategy chosen by the company manager (Arens, Elder, Beasely & Hogan, 2012). The need to facilitate the cohesion between the key elements of organization performance, therefore, is a major concern for a company’s financial manager, as the case of New Phone, Inc. shows rather graphically. While the idea of introducing a series of regular audits into the company’s operations in general and its financial transactions in particular may be viewed as a temporary solution to the situation, the actual key to the problem lies in the organizational values reestablishment. As Arens et al. (2012) explain, “The essence of an effectively controlled organization lies in the attitude of its management” (p. 289).
Despite the fact that the general manager of the Intercept Division, Cheryl Smith does everything that she may possibly do in the situation, when the threat of new entrants is increasing rapidly, the company clearly lacks the incorporation of basic ethical values into its framework so that the rates of corporate social responsibility (CSR) could be increased.
Strengths of the Company’s Control Environment
Despite having certain difficulties at present, New Phone, Inc. has a range of assets, some of which being created by Cheryl Smith. Specifically, the advantages listed below have to be listed in order to get the company’s priorities straight.
- Major improvements in the company’s profitability, which Cheryl Smith’s rearrangement of the organization’s Intercept Division, will contribute to the increase in the company’s efficacy. As a result, the organization will be capable of enhancing the existing system of audits by acquiring the equipment that was created with the help of the latest technological advances in order to carry out the control over the company’s financial transactions.
- High integrity rates within New Phone, Inc. contribute to the promotion of tee corporate values to every single member of the organization. Being members of the team, the employees are likely to be reluctant to isolate the company’s code of ethics. Consequently, the threat of a financial fraud will be reduced considerably; moreover, the enhancement of the company’s performance is expected due to the increase in the corporate values significance. It should be noted, though, that the specified step will require the introduction of the CSR principles into the company’s operations (Tank, Hull & Rothenberg, 2012). The cohesion between the staff members applauds to the concept of information and communication (Arens et al., 2012), as it helps manage the company’s data successfully through knowledge sharing and “initiate, record, process and report the entity’s transactions and to maintain accountability for the related assets” (Arens et al., 2012, p. 295)
- The fact that Smith managed to develop the financial approach, which allowed for matching the price cuts made by the competitor, can also be considered one of the key strengths of the organization at present. It is essential for New Phone, Inc. to realize that, to use the existing financial assets for improving one of the company’s aspects, the management will have to cut costs for certain internal processes, such as logistics (particularly, transportation as a significant part of internal logistics). The strategy in question aligns with the basic tenets of the proper authorization of transactions and activities as described by Arens et al. (2012)
- Major improvements in the customer service can be viewed as a huge benefit of the New Phone, Inc. Company, as the specified changes will help the organization stand out of the range of similar organizations with a weaker approach towards promoting customer satisfaction. As a result, the company is likely to maintain its market share due to a supposedly high and comparatively rapid increase in the amount of new clients. In addition, the approach in question will help attract new customers (Kapferer, 2012).
Weaknesses of the Company’s Control Environment
Unfortunately, the changes, which the company has survived over the past few years, are not enough for New Phone, Inc. to address every single one of its weaknesses and reduce the risk factors to nil. Specifically, the facts concerning the lack of initiative among the company’s departments deserves to be mentioned as the key problem for New Phone, inc. to deal with.
- Low rates of activity among the corporation’s management may cause a significant drop in the staff’s motivation, as “board of director and committee participation” (Arens et al., 2012, p. 298) is traditionally viewed as one of the essential parts of a proper control environment within a firm. The inconsistency, which the company’s managers and leaders show when displaying their engagement into the organization’s operations and the staff’s activities, clearly contributes to a significant drop in the control over the company.
- The current HRM policy, which dictates that the management should look for hiring aggressive employees might be viewed as somewhat controversial and, therefore, requiring further improvements. While there is technically nothing wrong with hiring determined employees, the lack of flexibility, which aggressive staff displays, may lead to serious internal conflicts and, therefore, to the disruption of the entire system of internal control, seeing that the latter is based on the concept of efficient communication (Arens et al., 2012).
- Conservative management may also impede the promotion of a proper control environment creation, as it will oppose the introduction of creative solutions into the organization’s framework.
- Having no internal audits must also be considered a major threat to the execution of an efficient control environment within the organization. As Arens et al. (2012) explain, incorporating monitoring into the framework of the company’s control environment is essential for tracking down the tiniest violations of the existing rules and the application of the corresponding measures, not to mention the prevention of the activities of the like in the future.
- Reduction of the control activities in the inventory department is another flaw in New Phone, Inc’s design. While cutting costs for certain activities in order to enhance others, such as the reduction of expenses for logistics in order to enhance the promotion campaign, can be viewed as a reasonable measure as long as it does not restrict the control functions performed by the corresponding department.
Factors Leading to Smith’s Manipulation of Control Inventory
As the analysis of the changes, which the company has gone through, shows, Smith’s being at the helm of the control inventory process did not lead to major improvements, instead, triggering a range of financial issues related to the improper allocation of the company’s assets. While the approach, which Smith has adopted as a tool for addressing the lack of competitiveness within the organization, has triggered an increase in revenues, the effects are only temporary; more to the point, further enhancement of the policy may finally lead to a complete destruction of the corporate values and the product quality standards, as the audits carried out by the organization carry barely a single scarp of significance.
A closer look at the situation will reveal that it was the lack of consistency in the company’s vision and ethics that has caused the current issues. In addition, the absence of proper communication tools and strategies has taken their toll over the temporary improvements, which the company is undergoing at present. As Arens et al. (2012) explain, it is imperative that a company should carry out both regular audits and daily monitoring of the key financial activities and, thus, make sure that no instances of financial fraud should occur in the course of financial transactions.
In addition, the lack of enthusiasm and involvement among the staff members could be viewed as the key factors that triggered Smith’s abuse of his control over the inventory of the company. Specifically, the absence of any records regarding the key financial processes that occurred in the company should be considered the factor that enhanced Smith’s abuse of his powers. According to Arens et al., “Adequate documents are essential for correct recording of transactions and control of assets” (Arens et al., 2012, p. 294). Therefore, the lack of information required for the analysis of the current financial strategy and its efficacy is the key factor that allows Smith to continue disrupting the company’s financial system and progress.
In addition, the lack of proper communication tools along with the inconsistent knowledge management approach adopted within the organization may hamper the introduction of a proper system of audits and, therefore, impede a consistent analysis of the organization’s key financial transactions. According to Arens et al. (2012), it is the clarity and an unceasing information flow within a company that promotes further progress and enhances the financial security of the entrepreneurship. Hence, without a high quality knowledge management approach, Smith fails to get the priorities straight and finance the departments that need support, such as R&D, therefore, reducing the company’s efficiency.
Conclusion and Recommendations
It is, therefore, highly recommended that the New Phone, Inc. Company should consider the concept of CSR as a possible addition to the set of values, which the organization promotes to its employees. Seeing that policies, which every member of the company must comply with, constitute a major part of the control environment, and an essential one at that, there is a strong need to update the set of ethical values that the company’s vision and mission are based on.
Apart from the above-mentioned addition to the New Phone, Inc. Company, the organization will also require a major reconsideration of its quality assurance system. To be more exact, the integration of regular audits and quality checks needs to be considered so that Smith could not use the organization’s financial assets for personal purposes. As soon as a strategy involving an elaborate system of audits is integrated into New Phone, Inc.’s financial framework, Smith will be no longer able to abuse his power as the general manager of the Intercept Division.
Reference List
Arens, A. A., Elder, R. L., Beasely, M. S. & Hogan, C. (2012). Section 404: Audits of internal control and control risk. In Auditing and assurance services: An integrated approach (pp. 289–336). 13th ed. Stamford, CT: Pearson. Web.
Kapferer, J.-N. (2012). The new strategic brand management: Advanced insights and strategic thinking. Philadelphia, PA: Kogan Page Publishers. Web.
Tank, Z., Hull, C. E. & Rothenberg, S. (2012). How corporate social responsibility engagement strategy moderates the CSR – financial performance relationships. Journal of Management Studies 49(7), 1274–1303. Web.