Tutorial 5

Pigeon Ltd
Audit & Corporate
Governance
• Describe the problems that you might
expect to find at Pigeon resulting from poor
internal controls.

• Make four recommendations for the

improvement of internal controls, and
explain the advantages and disadvantages
of each recommendation.
 Poor Internal Control
Pigeon has very few controls
over stock because Steve trust
local managers to make
decisions regarding the
purchase, sale and inventory
control.
Problems Expected
oToo much trust & responsibilities on
local managers may lead them to
commit fraud.
oKnow quite well where the weaknesses
are in the internal controls
oGet sufficient knowledge on planning as
well as committing fraud successfully
oOverstating sales or understating
expenses and liabilities.
Each shop has a stand-alone
computer system.
There is no integrated inventory
control, sale or purchasing system
and no regular system of inventory
counting.
Applications & resources only
available on the same computer.
More difficult to update & the
storage capacity is restricted to the
capacity of storage device.
The information of the inventory
provided may not be accurate and
not timely.
Manual systems are more prone
to errors.
 The quality of staff has fallen since May not perform tasks well &
the takeover. leads to unproductive business
performance.

May cause delay in most of the

business activities and processes.
 Recommendation Advantages Disadvantages
Implement the Reduce fraud & Hard to achieve
segregation of duties errors. -Requires more staff,
-Tasks, associated each must have
privileges are capabilities to perform
distributed among staff. specific duty.
-Information of data can
only be accessed by
authorized staff.
Use a network oAllow file sharing, oSecurity issues
computer system remote file access -System can easily
within company. hacked.
-Saves time oRapid spread of
-Can be access or update computer viruses
data stored by many -Due to interconnectivity
people. of workstations.
oIncrease Storage -Dangerous, harmful.
Capacity. oDependency on main
-Design a storage server file server.
on the network in order -If server breaks down,
to have a huge storage whole network unable to
capacity. operate.
-High maintenance cost
Implement a Provide accurate High implementation,
computerized valuation of stock match to maintenance cost.
inventory control the FS. High effort, time.
system Enable transactions to be
processed online, with
immediate updates.
Provide capability to
track stock levels & activity
for multiple locations.
Provide adequate online
inquiry & management
reporting capabilities.
Set new Provide guidance, Take time to adapt
organizational goals direction to staff new guidelines.
and objectives -Staff will perform duties -Specific goals can
effectively. impair performance,
Get the chance to depending conditions &
recognize area of skills situations.
required for any -Requires learning,
particular task understanding process,
-Staff has the opportunity high motivation from
to develop skills, staff.
potentials.
-Motivates staff to
increase performances.