Question

Phil and Jim were roommates in college and have always competed against each other. Since graduating from college, both men were hired at the same company. The company pays bonuses at the end of year based on performance, which also includes a weekend on their boss's yacht. Two years in a row Phil managed to surpass Jim's performance. This year, Jim is determined to get the highest bonus. Imagine you are the accountant and knowing that these two men are rivals, answer the following questions

3. Identify the steps in the budget process most susceptible to manipulation. Discuss at least two steps where budget discrepancies would be difficult to detect by managers.

4. Propose the goals that should be measured on the corporate score card to ensure that bonuses are paid to the manager making the greatest financial contribution

Answer 1

There can be two many ways budget process can be manipulated in the books of account. The general approach while doing manipulation managers follow in general is to increase the current year income and earnings by creation of fictitious accounts or assets to increase the organization profitability or by mitigating the current period expenses and losses.

Managers can manipulate budget process by multiple ways. Some of these ways of budget discrepancies difficult to detect by managers are

• By Creating Fictitious assets or by increasing revenue by manipulating the actual proceedings in working capital or capital expenditure. To manipulate some managers recognize certain revenues in advance than there actual recognition.
• Accounts can be also be manipulated by change in the accounting methods adopted by the organization or by change in accounting standards with an objective to improve the financial soundness or reputation of the organization. For instance some firm use straight line method or Written-down method to depreciate the assets.

Goals to measure on corporate score card to evaluation of performance and financial contribution of an employee towards achieving organizational goals & objectives are stated below. Managers should assess Qualitative as well as non-qualitative measures to evaluate individual and group performance while distribution of employee incentives in the form of bonus.

• Employee productivity towards organizational performance benchmarks targets- To assess the employee performance managers should look for individual productivity in terms of their contribution towards accomplishing targets of their division or department and the overall organization.
• Long Lasting relationship with the company's clients and key stakeholders- Financial contribution should be measured by the amount of relationship build for the existing clients and efforts made to acquire new clients for the business. As most of the time happy clients give business to the company again resulting in increase of net life cycle value from the clients.
• Commitment and contribution to the Group & Team- Apart from Individual performance, managers should also evaluate the performance level of each employee in terms of work behavior and people management skills to work efficiently in the teams and specific division or department they are rendering their services