Identify the risks that may be possible and the nature

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Reference no: EM132768615

ABC Ltd. is a firm headquartered in Delhi. It was founded in 2009 and deals with the high-end electronics manufacturing industry sold through retail supermarkets. The business is presently going through a rapid phase of growth. Its goods are getting a positive consumer response. The organisation is facing the challenges of maintaining good sales workers and establishing a successful financial structure. Ravi Narain is the company's CFO.ABC Ltd. has an outdated computerized accounting system which does not lock out the changes made after the month end.

  • ABC aims to build a more reliable and competitive financial structure and to consider introducing an incentive package for sales workers who are currently paying a flat wage.
  • ABC Ltd had a turnover of 800 crores in 2016-17 and was listed on the Indian Stock Exchange in 2014. Ajay and Pawan, respectively, are the newly appointed heads of the Finance and Human Resources divisions. Ajay is a specialist in street smart finance and has played a crucial role in the fields of budgeting and planning, finance and asset management. He has a team of 25 people who report directly to Ajay, including Jatin and Mohit,.
  • In spite of a limited salary, Ajay maintains a lavish style of living. Jatin maintains the journal entries according to Ajay's directions. One day HSBC bank notified Ravi Narain that Ajay's personal credit card balances were being paid off by ABC's account. Since, Ravi Narain was busy for Board Meeting confirmed that this might be reimbursement of his Travelling Expenses.
  • Jatin records the internet sales from the company's retail outlet as well as carries out following functions:
  • Reconciliation of accounts receivable sub-ledger to general ledger

Mailing checks to vendors

  • Coding and recording of checks received for deposit Ravi normally never reviews financial details as he trusts Ajay.
  • On the Human Resource front, to overcome the problem of retaining the sales employees, the company has recently hired Pawan as the HR director who is known for developing good HR policies to manage people effectively and motivate them to perform well.
  • Pawan advised the management to implement a compensation plan of base salary and bonus instead of fixed monthly salary. Sales incentive compensation is based on the performance of sales employees. The performance can be measured by looking at the revenue they generate for the employees. The management liked the proposal advised by Pawan and the compensation plan is finalized which was as follows.

Base Salary: 35,000/month
Commission: 5% of Sales exceeding 10,00,000/month + 5% extra commission on sales made over and above 20,00,000/-

Consequently, the present organization structure comes out as follows:

  1. After passing some time, the Board of Directors started realizing that the company is facing liquidity crunch. Also, the introduction of new ompensation plan resulted in unhealthy competition among employees.
  2. Some employees were less willing to provide assistance to struggling co-workers and would prefer to improve their own productivity. It also promoted an environment of excessive risk - taken by the sales employees for pursuing short term profits.
  3. The company has a system of identification of risk but only at the functional level and not for processes. Further these Risks are not communicated among various organization levels.

Problem 1: Identify the Risks that may be possible and their nature.

Reference no: EM132768615

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