Risk management and internal control is a vital aspect of an organization that helps to identify the risks and threats exposure. When the risks are identified, measures are implemented to address the identified threats. This approach helps the company in maintaining its integrity, pursue its objective and protect the stakeholder’s value. Risk management and internal control is the core of operations, management and governance.
Based on the scenario, the risks of Simon Blank Company would be graded with a letter grade B. The grading is based on loop holes left that are susceptible to fraud and mismanagement of the company funds as well as decisions that might implicate the company and lead to its down fall. The fraud activities likely to occur based on the current structure are misappropriation of funds, consumer fraud and bribery. This is because Gault does all the biding and customer charges without accountability nor seeking second opinion.
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Bribery is an issue due to the bidding process that are not vetted by a panel of management staff. Thus Gault and his secretary can allocate the tenders to people who are not qualified just for selfish interests. Buying the materials single handedly, they can misappropriate the company funds by quoting amounts that are not true and thus increasing the loss margin of the company. This is further transferred to the customers who are charged heavily. The indication of Galt of hindering the internal auditor to carry out his duties implies that he has issues that he does not want to be revealed to the CEO of the company with regard to his integrity.
The risk of fraud can be reduced by establishment of a committee that will be in charge of the bidding activities, approval of the purchase plan as well as establishment of standard charges for the customers.
References
Laura F. Spira , Michael Page , (2003) "Risk management: The reinvention of internal control and the changing role of internal audit", Accounting, Auditing & Accountability Journal, Vol. 16 Issue: 4, pp.640-661, https://doi.org/10.1108/09513570310492335
