University of San Jose-Recoletos

School of Business Management

Accountancy and Finance Department

Case Analysis
3138

Apostol Aquino Banguran

Cabinas Gomez
Surposa
After a thorough analysis our group conclude that failure to deal with the products that
failed the quality control, opportunity for collusion between the staff assigned in the
quality control department, and failure of supervision by the operations manager are the
general deficiencies of the internal control of the company. Also presented below are
the specific problems with the company. Our group also provided possible solution to
the internal control deficiencies.

Control Environment  Human Resources policies and

 The operations director did not
understand the science involved in
the quality control process. He also
never asked for information on
product failure rates to be reported to
him.
procedures. The company must have
strict personnel policies to reasonably
ensure that the operations director is
competent, capable and honest
enough to do his/her duty.

Entity Risk Assessment Process  Timely or frequent reports should be

 It took gradual increase in production
failure before being noticed by
operation director.
 Products do not have proper
processing after it fails the quality
control.
Control Activities
 A single signature on a product
compliance report was required to
pass or fail in QC and these reports
were then filed away with no-one else
seeing them. The increased failure
rate had resulted from her signing
products as having “failed QC” when,
in fact, they had passed.
 Quality control staff freely accessed
the asset of the company and even
find a local buyer to sell them
presented to the operations manager
to closely monitor the performance of
the company’s production process. A
computer program can also help
where it can automatically calculate
and determine the production failure
rate.
 Since rework cost were not economic
the company should look for a third
party company that are ready to buy
the products which failed in the quality
control. Also adequate documents
and records must be presented to
make sure that all transactions are
valid.
 The company must apply the concept
of segregation of duties. Quality
control transaction must be singed not
only by the staff assigned alone.
 The company can have Inventories
for products which failed the quality
control. Signature of the operations
manager must be required in any
products that will be removed from the
inventories.