Chicken Run Free Essays

What are the roles of professional accountants in relation to their compliance to the 3yLaws of the Malaysian Institute of Accountants as in this case? Integrity Integrity means that the auditor must always carry out their auditing duties and responsibilities with the highest level and sense of integrity. Their work must be performed with diligence, responsibility, and complete sincere truthfulness. The auditor should not involve themselves in any illegal activities that can bring down their reputation. We will write a custom essay sample on Chicken Run or any similar topic only for you Order Now In this case, professional accountants should always check the inancial statement of the company so that the Information In the financial statement has fairly presented. Objectivity Objectivity means that an auditor must be independent in appearance and in fact, and also to be unbiased and Impartial. For an auditor to be Independent, they should not have any financial nor managerial relationship with anyone or anything that has to do with the company being audited. In this case, the professional accountants have to be objectivity In evaluating the going concern Issue. They have to Investigate he relationship between Encik Selamat and Encik Azrnan. They should ask Encik Selamatto proceed to the legal suits against Cold Gold Sdn. Bhd. Professional competence and due care Competence and due care means that avoid from conflicts of interest. A conflict of interest may exist when there Is a significant relationship with a person, entity, product or services that could be viewed as impairing the members’ objectives. Professional member should understand well about the business environment of EPM so that they can make sure that the company Is free from conflicts of Interest. How to cite Chicken Run, Papers Chicken Run Free Essays MAF680 CASE: CHICKEN RUN GROUP MEMBERS AFIQ IZDIYAD BIN IBRAHIM 2008368767 AHMAD SABRAN JAMIL BIN MOHD AMIN 2008555807 MUHAMAD RUZAINI BIN AB RAHMAN DAYANG CASANDRA ASMALIA BT SAIDI ILI NAZIEERA BT MOHD SOHED 2008383779 2008333715 2008318359 CONTENTS Page Introduction 1. What were the problems/issues facing the company? 2. Who are the stakeholders and what their stakes are? 3. We will write a custom essay sample on Chicken Run or any similar topic only for you Order Now How were the affairs of the company managed? 4. How would you describe the system that existed within the company? 5. How would you assess and rate the financial health of the company? 6. What are the possible salvage plans? 7. What would you suggest as appropriate course of actions? 8. How would an external auditor perform his work in this company? 9. If you are appointed as the auditor to handle the work of this company, describe an appropriate audit programme on Trade Receivables of the company? 10. How should a professional member conduct himself/herself in commerce and industry? 11. What are the roles of professional accountants in relation to their compliance to the By-Laws of the Malaysian Institute of Accountants as in this case? 12. List 6 critical success factors for small and medium size enterprise. 3 3 4 5 5 6 6 7 8 9 11 11 2 Chicken Run Introduction Encik Selamat, a Certified Public Accountant (CPA), had been the General Manager of Excel Poultry Meat Sdn Bhd (EPM) since 2005. EPM was established in 1998 to carry on chicken farming and supplying of whole chicken to various outlets in Malaysia. Now, EPM had more than 200 employees within the organization and started positioning itself amongst th e top 5 chicken suppliers, in the mid -tier producers in country. The company was able to maintain its operations and started to make profits in the poultry and meat industry since the demand for chicken buoyant. However, the company had facing problem in 2008. The issues arose includes the management of trade receivables, in dealing with superiors, subordinates and customers as well as in handling credit control. The case became worse with a situation faced by general manager of the company who took opportunities and capitalized on his past connections while assuming office. The issues also highlighted the leadership style, lack of adequate internal control system on sales and collection processes, flaws in internal reporting channel as well as issues on professional ethics and conduct of an accountant. Besides, it was also related to situation when accountants would be required to act when information might not readily be available. 1. What were the problems/issues facing the company? Since 2008, the company has been facin g the problem of increased chicken feed cost which has risen to RM88 from RM54. 50 (an increase in almost 61. 5%). The increase in feeding cost has ultimately increased the company ¶s production cost to about 56. 5%. The increase of feeding cost has affected t he whole industry. Thus, FLFAM has called for higher chicken prices in order to protect producer ¶s earnings in the face of feed cost hike. However, members of the FLFAM had seen a drop in demand of the chicken. Since the event of the feed cost hike, the company discovered that they have systematically low operating cash. In that event, the company resorted to borrowing short -term loans from the bank in order to meet operating obligations. This in turn increased i ts financial obligations in terms of interest payments. The aging analysis of the customers of the company had turned out that one of the major customers  ± Cold Gold Sdn. Bhd. has gone over the company ¶s credit limit, yet marketing department continued to supply products to the company. Another problem faced by the company is that the company ¶s General Manager, Encik Selamat has close relationship with one of the executive directors of Cold Gold Sdn. Bhd. , Encik Azman. This relationship has enabled Cold G old to extend its credit limit with authorisation from Encik Selamat and not the Credit Controller (Ms. Choy). Encik Selamat also has personal inte rest in the deal with Cold Gold Sdn. Bhd. The deal was if Encik Selamat extended the credit limit of Cold Gol d Sdn. Bhd. , he will personally benefit from the deal. Encik Selamat did not disclose this matter to the Board. The company also faced a decrease in net profit within 3 years of its operation in year 2006  ± 2008. The decrease of net profit is mainly becaus e of the feeding cost hike and also undiscovered irregularities in the accounts. The figures in the balance of the accounts of the company do not tie up to the confirmations given to their debtors and creditors. This proves that the company ¶s accounts are not in proper order and there is possibility of misstatements in their accounts. Another problem disco vered during the aging analysis is that in EPM ¶s books, a retailer, Mr. Siva ¶s account had outstanding balance. This was in contrast with the books of Mr . Siva, where he claimed to have paid all outstanding balance and the cash payments had been made to Encik Munir (one of the former personnel in finance department). 2. Who are the stakeholders and what their stakes are? Customers are one of the important people that help a company grow. Without them, a company cannot sustain its operations. That is the importance of customers to the company. In turn, customers also have stakes in the company. Customers rely on the supply of products, in this case, poultry supply for their daily sales and consumptions. They need reliable supply of poultry in terms on quality, price and time of delivery of the poultry. Government is also one of the stakeholders of the company. At this point of time, Malaysian government is promoting the integrated chicken production in the East Coast Economic Region (ECER). Therefore, the government relies on the poultry industry to succeed in this project. This includes EPM as one of the top five chicken suppliers in Malaysia. The major creditor in this case is the bank. The company has been facing low operating cash which resulted in the company to resort in borrowing short -term loan from the bank. The stakes of the bank in the company is to be assured that the company has consistent cash flow to pay for their monthly commitment of bank loan instalment to the bank. 4 Another stakeholder of the company is the employees. As employees, they are concerned about not losing their jobs (i. e. job security). They need to be assured that their time and energy spent on the company are worth it. Therefore, they need to be assured that the company is doing well so that they do not have to find another job that has higher job security. 3. How were the affairs of the company managed? There are several affai rs faced EPM. First, the company faced operational crises when the cost of production rises in 2008 by about 56. 6%. Fortunately, Federation of Livestock Farmers ¶ Associations of Malaysia (FLFAM) increase the price of chicken to protect producers ¶ income. However, demand for chicken decreased. Then, EPM faced another problem relating to the development of the company in late 2008 as the note of a report indicates that the operating cash was systematically running low. The company managed to resort to signifi cant increase in short -term borrowing in order to meet its operating obligation. The company ¶s Credit Controller, Ms Choy has discovered from the aging analysis of customers that the credit limit of its major customer, Cold Gold Sdn Bhd had reach its leve l but still the marketing department continued to supply chicken to the company. She managed to inform the matter to Encik Selamat and he went for a meeting with one of the executive directors of Cold Gold Sdn Bhd to settle it. Puan Azura, the Accounts Exe cutive and Ms Choy also send reminders to all customers with outstanding balances in respect of their accounts. However, a few weeks later, Mr Siva, one of the retail customers with a small account came by the office to complain to Ms Choy about the incorr ect figures on the statement of accounts sent to him. She found out that Encik Munir, a former staff who received the cash payment from Mr Siva, had not disclosed the receipt of payments from customers. Then she reported the matter to one of EPM directors. 4. How would you describe the system that existed within the company? In account receivable system of Excel Poultry Meat Sdn Bhd, marketing department send a copy of sales invoice of each sales transaction to the accounting department. The account receivable division in the accounting department will set credit limit for every customer to 5 make sure there is cash inflow to the company. Then, accounting department will send timely reminders to customers with outstanding balances in respect of their account s. Then the department will produce aging analysis of customers and the credit controller will report customers who have reach their credit limit to Encik Selamat. Customers will then pay the amount payable by them to the finance department. After that, fi nance department will send a copy of the payment receipt to the accounting department to update the customers ¶ accounts. 5. How would you assess and rate the financial health of the company? Generally, the financial health of Excel Poultry Meat Sdn Bhd (EPM) is getting worse year by year. It was getting worse because the net profit of EPM is decreasing since year 2006. Even the company had growing in revenue in which cause by the demand in the poultry and meat industry, the company still cannot gain hig her operating profit. It was mainly pertaining to significant increase in cost of sales. The company had to incurred higher feeding cost because the increasing in purchase price of a bag of feed. The increasing affect on the company ¶s cost of sales. The financial position becomes worse as the company continued supply products to their customers even though their customer credit limit had already exceeded. The customers had difficulty in paying the debt which leads to long outstanding debts. Therefore, ther e are increasing in trade receivables as well as trade creditors. The increasing in trade creditor caused of low operating cash. So, the company had to resort to significant increase in the short-term borrowings in order to meet its financial operating obl igation. 6. What are the possible salvage plans? One of the possible salvage plans for the company is managing cash flow system. The company offers the customers to purchase their products by credit. Before approving the customers to engage with the com pany, the company should screening the customer credit and relationship. This is to avoid personal interest in the company ¶s management team. The company should prepare a contract that includes the redit term period (e. g. 90 days, 120 days or 180 days) in collecting the debt. The customer will not have long outstanding which could affect on the company cash flow. The company can send reminders to customers with outstanding balances in respect of their accounts. So, the customers can avoid paying higher debts and pay at specific time. 6 In order for the company avoid in having risk of customers purchase wi th credits, the company probably can look for potential customers that purchase their products by cash. The customers can be small -medium sized company or s mall groceries stores. The income of the company can be increased and higher operating cash flow. The company can apply for banking facilities in order to meet their financial obligations. The money they received can be used for improving the cash flow of the company. The company can purchase additional raw materials in order to supply their products to their customers. Besides, they can use the money for encouraging their customers in paying the debt. For example, provide reminders and improve the company debt collection. 7. What would you suggest as appropriate course of actions? There are several problems faced by EPM. The first problem of EPM is which indicated that the operating cash of the company was systematically running low. The problem emerge d during the financial year 2008  ± the economic turmoil. As a result of recession, with high inflation in the market, the price of a bag of feed increase, hence the increase of cost of production. At the end of the day, EPM without hesitation, have to incr ease the price of chicken to maintain their sustainability. The consumer accepts such increase negatively, the demand of whole chicken drop. The situation described was the initial part of the problem which later on gets much worst. With the drop of demand of the chicken, EPM indicated that the operating cash was systematically running low. EPM later, planning to increase the short-term borrowing in order to meet its operating obligation. Having to service the high interest rate currently in the market make s absolutely a bad idea, however they was left with no choice. Everyday the business of EPM went from bad to worst. The management team tried everything to bring the business on track. In the process, they discovered that, well from the aging analysis of c ustomers that the credit limit of Cold Gold Sdn Bhd, one of their major customers had gone into its level and yet the marketing department continue to supply products to the company. This exacerbated the existing operating loss faced by the company. I am here suggesting that the appropriate course of action is to have a proper guideline in selecting customer. The guideline need to clearly reveal the requirement needed in accepting customers, the financial stability of the customer so to speak. A good screen ing of customer such as credit check will definitely benefit the company in the long run; upon each credit terms of each of the client come due. As the problem of EPM being analysed deeper, we discover that there is conflict of interest involved. Encik Selamat was curiously caught single -handedly by EPM ¶s Credit Controller, 7 Ms Choy. Encik Selamat said to have a  µdeal ¶ between him and one of the director in Cold Gold Sdn Bhd (highly likely to be En Azman). If this was the case, looking at the bigger picture, this conflict of interest somehow can be one of the factor of the financial fiasco faced by EPM. In handling this proble, again, EPM need to have a proper guideline or policies and procedures so to speak in handling conflict of interest. Implementing a p olicy to ensure the members of EPM to disclose any conflict of interest in any of their client is to be made compulsory. This is a good first step in moving EPM in a better direction, a company which does not tolerate with any such behaviour. My next sugge stion in handling this problem in much quicker and more serious, is to have interference of Board of directors seem appropriate before the situation gets much worst. At least to have En Selamat being transferred to other subsidiary. The successor however n eed to be an experienced person in poultry industry to turn EPM around. In a bigger picture, the subordinates of En Selamat will view of the action(transferring En Selamat to other subsidiary) to be a serious measure shown by the Board of Directors to not tolerate with greediness and putting self interest beyond the interest of the company. 8. How would an external auditor perform his work in this company? As an external auditor of this company, they have to fulfil all the duties and rights of an auditor which are laid down under Section 174 of Companies Act 1965. The normal audit works have to be performed for the normal financial statements with no issues arise. For example, under Section 174(2), the auditor shall consider all accounting records are properly kept. However, there were issues arose in the financial statements of the Excel Poultry Meat Sdn Bhd. The auditor must react from these issues that had been arisen. The main issue faced by the company is rega rding its trade receivables. It has been supported by general manager who took opportunities and capitalized on his past connections while assuming office. Hence, the main focus here pertaining to the reaction of the auditor reflected by the issues in the financial statements. As the auditor had discovered this kind of irregularities, he has to report to the board of directors. But, Encik Selamat who is the general manager of the company and also the key person involved in this main irregularity has strong connections with board members at the parent company. Hence, there is a possibility that the board may not adequately deal with the problem after having brought to their attention. As a result under Section 174(8) which stated that require auditor to repor t the matter in writing to the CCM. Thus, this reaction has to be done by the auditor in performing audit works in this company. 8 9. If you are appointed as the auditor to handle the audit work of this company, describe an appropriate audit programme o n the Trade Receivables of the company? In designing the tests of details of balances in trade receivables of the company, the auditor must satisfy eight accounts receivable balance -related audit objectives which are as follows: 1. Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. Detail tie -in) 2. Recorded accounts receivable exist. (Existence) 3. Existing accounts receivable are included (Completeness) 4. Accounts receivable are accurate. (Accuracy) 5. Accounts receivable are properly classified (Classification) 6. Cutoff for accounts receivable is correct (Cutoff) 7. Accounts receivable is stated at realisable value. (Realisable value) 8. The client has rights t o accounts receivable (Rights) After all of these eight objectives have been achieved, external confirmation are given to the accounts receivable. The primary purpose of accounts receivable confirmation is to satisfy the existence, accuracy and cutoff objectives. When sending in confirmations, there are basically two types of confirmations: positive and negative. Positive confirmation is a confirmation requesting the debtor to confirm directly the amount stated in the confirmation is correct or incorrect. Negative co nfirmation is a confirmation addressed to the debtor but requests only to responds if debtor disagrees with the stated amount. When there are non -responses in the first confirmation sent, second and third requests of confirmation are sent. Even with these confirmations, debtors still does not respond to the confirmation, subsequent test are necessary. For example, subsequent cash receipts, duplicate sales invoices, and shipping documents. 10. How should a professional member conduct himself/herself in co mmerce and industry? A professional member in commerce and industry should always comply with the Companies Act 1965, Accountants Act 1867, and other regulatory bodies constituting its responsibilities. MIA By-Law has distinguished the responsibilities be tween professional member in the public practice and professional members in business. However, both parts require a 9 professional member to always act with integrity, objectivity or the good reputation of the profession and as a result would be incompatibl e with the fundamental principles. A professional accountant shall comply with the five main fundamental principles. The first fundamental principle is integrity. A professional accountant should be straightforward and honest in all professional and busi ness relationships. A professional accountant should also be objectivity. He is not allowed to be bias, have conflict of interest or undue influence of others to override professional or business judgments. A professional accountant must be competence and due care to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards. A professional accountant is also required to act with confidentiality. He must respect the confidentiality of the information acquired as a result of professional and business relationships and, th erefore, not discloses any such information to third parties without proper and specific authority, unless there is legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties. A professional ccountant must act with professional behaviour that complies with relevant laws and regulation and should avoid any action that discredits the profession. As a professional member of public practice and commerce, one should alway s avoid threats to the compliance of the fundamental principles. The first threat is self -interest threat. This threat is the threat that a financial or other interest will inappropriately influence the professional accountant judgment or behaviour. The se cond threat is self -review thr eat. This is the threat that a professional accountant will not appropriately evaluate the result of a previous judgment made or service performed by the professional accountant, or by another individual within the professiona l accountant ¶s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service. The third threat is advocacy threat. This threat is the threat that a professional accountant will promote a client ¶s or employer ¶s position to the point that the professional accountant ¶s objectivity is compromised. The fourth threat is familiarity. This is the threat that due to a long or close relationship with a client or employer, a professional accountant wil l be too sympathetic to their interests or too accepting of their work. The final threat is intimidation threat  ± the threat that a professional accountant will be deterred from acting objectively because of actual or perceived. 10 11. What are the roles of professional accountants in relation to their compliance to the ByLaws of the Malaysian Institute of Accountants as in this case? In this case, all the accountants of EPM are considered professional members in business. Professional members in business an d public practice both must comply with the fundamental principles in Section 100 in the MIA By -Law. It also stated that all professional members of the public and business must eliminate or reduce threats to an acceptable level. Encik Selamat is a Chartered Professional Accountant . According to section 100. 8 of the MIA By-Law, he is facing the self -interest threat because he is accepting personal benefits when he extended the credit of Cold Gold Sdn. Bhd. Self -interest threat is a threat that a financial or other interest will inappropriately influence the professional accountant judgment or behaviour. Encik Selamat is supposedly to safeguard  ± which is to eliminate or reduce this threat. According to Section 320 of MIA By -Law which regards to the preparation and reporting of information, a professional accountants shall take reasonable steps to maintain information for the professional accountant in business is responsible in a manner that firstly describe clearly the true nature of business t ransactions, assets or liabilities. Secondly, classifies and records information in a timely and proper manner. And thirdly, represents the facts accurately and completely in all material respects. It also stated that threats to compliance with the fundame ntal principles, for example in this case intimidation threats to objectivity or professional competence and due care. Ms Choy is pressured to decide whether or not to raise the case of personal interest of the Encik Selamat, the General Manager of EPM. Th e significance of the threats will depend on factors such as the source of the pressure and the degree which the information is, or may be misleading. It is the duty of Ms Choy and Pn Azura to reduce the significant threats to an acceptable level. If still Ms Choy and the other professional accountants cannot eliminate the threat of intimidation to the GM, they should disassociate themselves from the information that creates threat. The first way is that they should obtain legal information to report the ac tions of En. Selamat for his personal interest with Cold Gold Sdn. Bhd. Another way is to consider resigning. 12. List six critical success factors for small medium size enterprise. 1. People – The right people needed to be employed by the company to ensur e the growth of a company. 2. Price  ± The right price of the product and services is crucial in attracting customers. The profit margin need not be too high and too low. 11 3. Place  ± The place the business took place is very important as to make easy for the customer to come and do business. A place which too remote from the target customers or too near to other competitors will not be advisable. 4. Product  ± A company must always bear in mind to not sacrifice the quality of their product in achieving high profit sol ely. A company which is able to have loyal customer always a winner. 5. Prize  ± A company may be successful in a short term but to maintain in a long run, to always reward the employees who worked hard day in day out will always enhance their working producti vity which at the end of the day benefits the company entirely. 6. Marketing  ± A company need to have the right type of marketing (based on their respective industry) to ensure them to reach their target market and make known of their quality product and services at large. Failing to do that, a company may find them a ha rd way to expand or grow their business further. 12 How to cite Chicken Run, Papers Chicken Run Free Essays string(33) " irregularities in the accounts\." 1. INTRODUCTION 1. 1 Case Background This case is about the Small medium enterprises, Excel Poultry Meat Sdn Bhd (EPM) that face management, production, financial and internal control problems. We will write a custom essay sample on Chicken Run or any similar topic only for you Order Now Besides that, In this case also show conflict of interest between General Manager of EPM, En Selamat with the main debtors. The lack of internal control causes bad financial performance since 2008. Other than that, this case also shows the external factors for the production process that cause â€Å"chicken run† crisis. Our responsibility is to give the solutions to EPM for face their problems. SMEs is the most important for Malaysian economic growth, so for that purpose we need make sure our SMEs had the excellent management in their financial and internal control. 2. Company Background Excel Poultry Meat Sdn Bhd (EPM) was establish in 1998 as Small and medium sized enterprise (SME). Their Core business is chicken farming and supplying to various outlets in Malaysia such as hypermarkets and restaurants. Currently, they have more than 200 employees. EPM aso knowed as Top 5 chicken supplier in mid-tier producers in the country. 3. Definition of SMEs. Malaysia adopted a common definition of SMEs to facilitate identification of SMEs in the various sectors and subsectors. This has facilitated the Government to formulate effective development policies, support programmers’ as well as provision of technical and financial assistance. An enterprise is considered an SME in each of the respective sectors based on the Annual Sales Turnover or Number of Full- Time Employees. SMEs were divided into two categories. First category is manufacturing, manufacturing-related services, and agro-based industries. Small and medium enterprises in this industries have full-time employees not exceeding 150 OR with annual sales turnover not exceeding RM 25 million. Second category is services, primary agriculture, and information communication technology (ICT) sectors. Small and medium enterprise in this sectors have full-time employees not exceeding 50 OR with annual sales turnover not exceeding RM 5 million (SMEs. Corp, 2012). Table 1: Definition of SMEs |Type/ Size |Micro-enterprises |Small enterprise |Medium enterprise | |Manufacturing, |Sale turnover of less than RM |Sales turnover between RM 250,000 and|Sales turnover between RM 10 million | |Manufacturing- |250,000 OR full time employees |less than RM 10 Million OR full time |and RM 25 million OR full time | |Related Services and |less than 5 |employees between 5 and 50 |employees between 51 and 150. |Agro-based industries | | | | |Services, Primary |Sales turnover of less than RM |Sales turnover between RM 200,000 and|Sales turnover between RM 1 million and| |Agriculture and |200,000 OR full time employees |less than RM 1 million OR full time |RM 5 million OR full time employees | |Information Communication |less than 5 |employees between 5 and 19. |between 20 and 25. |Technology (ICT) | | | | (Sources: SME Corp. Malaysia) Table 1 above shows the summary of defining Malaysian SMEs. 2. 0 ISSUES AND PROBLEMS There are many problems that can be detecte d in Excel Poultry Meat Sdn Bhd (EPM). The main issue is a lack of internal control. There is no segregation of duties among EPM staff. This situation can be seen when Munir, the former staff at the finance department, collects the payment from client but he does not disclosed the payment receipt to the account department. Next, the issue is conflict of interest. The situation can be seen on the company’s General Manager, Encik Selamat has close relationship with one of the executive directors of Cold Gold Sdn. Bhd. , Encik Azman. This relationship has enabled Cold Gold to extend its credit limit with authorization from Encik Selamat and not the Credit Controller (Ms. Choy). Encik Selamat also has personal interest in the deal with Cold Gold Sdn. Bhd. The deal was if Encik Selamat extended the credit limit of Cold Gold Sdn. Bhd. , he will personally benefit from the deal. Encik Selamat did not disclose this matter to the Board. Besides that, the issue is the increasing of production cost. Since 2008, the company has been facing the problem of increased chicken feed cost which has risen from RM54. 50 to RM88; the increase is more than 50%. The increase in feeding cost has ultimately increased the company’s production cost to about 56. 5% the increase of feeding cost has affected the whole industry. Thus, Federation of Livestock Farmers’ Associations of Malaysia (FLFAM) has called for higher chicken prices in order to protect producer’s earnings in the face of feed cost hike. However, members of the FLFAM had seen a drop in demand of the chicken. On top of that, the event of the feed cost hike discovered that the company has systematically low operating cash. In the situation, the company resorted to borrow short-term loans from the bank in order to meet operating obligations. This in turn increased its financial obligations in terms of interest payments plus principal. Then, there is also issue on the shortage of chicken supply in market. Since the feed cost hike, the company has cut down the production of chicken in market. While at the same time, the demand of chicken from hypermarket, flea market and individual become high. The ceiling price that control by government also contributed to this problem. Another problem discovered is that in EPM’s books, a retailer, Mr. Siva’s account had outstanding balance. This was contrast with the books of Mr. Siva, where he claimed to have paid all outstanding balance and the cash payments had been made to Encik Munir. This can show that the company has lack of management on account receivables. Last but not least, Encik Selamat has influence in the company make the small and medium enterprise look alike a sole proprietor to him. Every decision making by Encik Selamat is totally agree by the other staff. The leadership style of Encik Selamat also need to consideration in the company operation. FINANCIAL RATIO ANALYSIS | |2006 |2007 |2008 | |Current ratio |0. 85 |0. 59 |0. 4 | |Net profit margin |4. 02% |(0. 35)% |(1. 05)% | |Return on asset |14% |(1. 07)% |(2. 76)% | GRAPH [pic] [pic] Based on the graph above, the company faced a decreased in net profit within three years of its operation in year 2006 to 2008. The decrease of net profit is mainly because of the feeding cost hike and also undiscovered irregularities in the accounts. You read "Chicken Run" in category "Papers" The company also faced a decreased in return on asset within three years of its operation in year 2006 to 2008. The decreased of asset is probably because of the bottom line of the company is also decreased due to the feeding cost hike. 3. 0 SOLUTIONS AND RECOMMENDATIONS Internal control system Internal control is main problem for this company. It plays an important role in preventing and detecting fraud of the organizations. For example this company has no segregation of duties that important for the company to observe and see the flow of the company functions such as En. Munir (finance department) collects the payment from client and does not disclosure the receipt to accounting department. When these functions not be divided, a detailed supervisory review of related activities is required as a compensating control activity. Segregation of duties is a deterrent to fraud because it requires collusion with another person to perpetrate a fraudulent. So the company must have segregation of duties to reduce the critical problem of internal control. Such as, the approval function, the accounting or conciliating function, and the asset custody function should be separated among employees. Excel Poultry Meat Sdn Bhd (EPM) is one of the SME’s company and need to follow all the rules and regulation internal control for SME’s. Encik Selamat as a general manager need to emphasize the nature and importance of the internal control, organize and lead all staff to set up a whole, appropriate internal control system to make middle managers and ordinary employees see the importance of the internal control to enterprise develop and job descriptions respectively. At the same time, managers should teach others a good example for all staff and establish a scientific evaluation system to supervise the implementation of the internal control. Besides that, SME’s internal control also need the company to have internal environment that refers to the basis of the internal control and when internal environment improve it can reduce the establishment of the inherent limitations of internal controls effectively, and improve the efficiency of internal control. According to the relevant laws and regulations, SMEs should establish a reasonable internal structure and give full play to the strength of the collective power to avoid excessive concentration of rights. Furthermore, the company also need to monitoring and reviewing the employees. It is the one of the internal control system that reviewed by management. By performing a periodic assessment, management assures that internal control activities have not become obsolete or lost due to turnover or other factors. They should also be enhanced to remain sufficient for the current state of risks. The availability of information and a clear and evident plan for communicating responsibilities and expectations is paramount to a good internal control system. At last, the company must control the environment to be a good internal control. A sound control environment is created by management through communication, attitude and example. This includes a focus on integrity, a commitment to investigating discrepancies, diligence in designing systems and assigning responsibilities. When the company follows all the framework of good internal control, the company can become better and can be successful in the future later. Management information system This company also lack of focus on the important considerations for proper running of business operations. It is because the general manager cannot proper running the business operations. The company must have a mission and vision to be successful in the future. If company does not use the mission and vision, the company cannot run properly and become chaotic. So the solution is to use management information system that designed to help the organization accomplish specific goals or objective. Management information system  (MIS) provides information to the organizations to manage themselves efficiently and effectively. Besides that, management information system are typically computer systems used for managing three components that are technology, people individuals, groups or organizations) and data (information for decision making). Furthermore, the management information system uses to analyze the operational activities in the company to become more effective and efficient. Lastly, when the Excel Poultry Meat Sdn. Bhd uses the management information system, it can be better and more efficient to the company to manage and running their business properly and can a chieve goal, mission and the vision successfully. Negotiate with suppliers To solve the higher costs of chicken feeds in Excel Poultry Meat Sdn Bhd, the company may try to negotiate with their suppliers in considering the price reductions or offering some cheaper alternatives. If the suppliers are unable to do so, the company has to explore the other suppliers who are able to provide a reasonable price. By continuously watching the sources from a few of suppliers, it may be effective way to keep the costs lower due to competition. Moreover, some government agencies and private sectors could play an important role in assisting SMEs to solve the problems which they are facing. For example, the company may obtain some advisory services and consultancy from the Malaysian Agricultural Research and Development Institute (MARDI) in order to get some ideas on the chicken feeds problem. They may ask for the new alternatives to replace the old chicken feeds which are higher in costs. The SMEs like Excel Poultry Meat Sdn Bhd also may apply the financial tools to help them in cost management such as breakeven point, budgeting and cost analysis. For example, if the company uses budgeting, it will able to prepare a forecast of revenues and expenses, so that it may perform better in the financial aspect. It also enables to find out the cost constraints on its operation. The company must gain the raw materials at the possible lowest price and use them as effectively as possible while maintaining the quality of output. Marketing mix Besides that, Excel Poultry Meat Sdn Bhd also faces the pricing problem. When a company is in a highly competitive industry, it must be able to provide high quality products at low cost. If they do not, they may be perished. In order to compete with other companies in the similar industry, the marketing mix is always crucial which it encompasses price, product, promotion and place. The SMEs like Excel Poultry Meat Sdn Bhd needs to improve their marketing strategy on promoting their products in terms of branding, packaging and promotion to increase their revenue. With the greater turnover, the company may get the fund to improve the growth of their business. Furthermore, it may consult the SIRIM Berhad and it may help them in standardization and certification of their products according to their point of views. With the government support, it may satisfy the needs of consumers on the quality of their products. If the products have been recognized by the government, the consumers will be more reliable on them and the price may be marked up to overcome the problem of increase in cost of chicken feeds. The company also enables to explore the other potential markets in the foreign countries. As the demand in local country may not be satisfied, the company may choose other foreign markets which they have higher demands on the chicken supplies. Code of ethics The solution for the conflict of interest between Encik Selamat and Encik Azman is establishes the five fundamental principles according to the code of ethics. Encik Selamat should follow the code of ethics of the five fundamental principles such as integrity, objectivity, competence and due care, confidentiality and professional behavior. Some of the fundamental principles can be applied by Encik Selamat as the guidance to comply with the ethical behavior. For example, Encik Selamat should apply the integrity principle in which Encik Selamat should be honest in all professional and business relationship between his and the customers. In this case, Encik Selamat should be honest in the business although Encik Azman is his best friend. Besides that, Encik Selamat should comply with the principle of objectivity in which Encik Selamat should not allow conflict of interest to override professional or business judgments. In terms of professional competence and due care, Encik Selamat should maintain professionalism which cannot allow customers supplied without concerning the outstanding balances. Last but not least, Encik Selamat should apply the professional behavior which should comply with the relevant laws and regulations. Effective cash collections process The solution for the poor collection of debtors’ outstanding leads to cash flow problems is designed an effective cash collection process which shown as below. [pic] Excel Poultry Meat Sdn. Bhd. (EPM) should design the effective cash collection process to avoid the cash collection problems. The effective cash collection process is when the customers paid the payments to the company, the payment should passed to the accounting departments to verify the payments and the accounting department will send the cash receipts back to the customers. Besides that, the accounting departments in the company will put the deposits in the Bank after received the payments from the customers. Then, the Bank will send the statement of deposit back to the accounting department of the company. In this case, the weakness in the cash collection problems leads to the cash flow problems. For example, the net profit of the company is decreased from year 2006 to 2008. This means the company is facing the cash flow problems which can show by the financial performance of the company which is getting worst compare with previous year. SWOT Matrix |Strengths |Weakness | |One of the top chicken suppliers |Poor in internal control | |Has qualified accountant (En. Kassim) |Financial problems | |Good in development of marketing plan |Lack of leadership | | Lack of control in making decision | | |Imbalance of cash flow | |Opportunities |Threats | |Government support |Potential chicken disease | |Strong chicken consumption in domestic market |Government policies (ceiling price) | | |Increase in cost of raw materials | 4. 0 CONCLUSION As a conclusion, those have several main problems that cause the financial problem in EPM. Those problems are arise because lack of control in management and production within the company. In the business, those who have relationships between several factors will affect the financial performances. Economics, production and management are the factors that cause the financial crisis in EPM. The relationships are show bellow: 1. 2. EPM need to make sure their internal control is in the good position to make sure their cash flow can be controlled to run the business. The integrated systematic management on financial, internal control and production will give the EPM a better financial position in the future. ———————– Increase of Production cost Decrease of demand Decrease of sales Decrease of company profit Lack of internal control Increase the possibility fraud Bad financial performances How to cite Chicken Run, Papers