Question

KKL consultancy Muscat provides tax and financial advisory services to their customers. Mazin is one of their new client, who worked as an engineer. Mazin wanted to start a project and contacted KKL consultancy Muscat for advice regarding profitable investment opportunities. KKL have recommended him to invest in finance companies, stock market and insurance. KKL assured him that they will look after his matters relating to tax, and would also invest in the name of the Mazin. Providing all the surety by KKL consultancy, Mazin decided to invest in a finance company and handed over a cheque for 10,000 OMR to KKL consultancy.

One day, Mazin came to know that KKL consultancy did not invest the money in any company and did not pay the tax to the tax authorities. Despite Mazin’s repeated requests, KKL consultancy

had not provided the certificates of investment and receipt for payment of income tax. Mazin was very upset due to unprofessional behavior of KKL consultancy. The consultancy firm was unable to provide any proof of investment. Hence, a written complaint was lodged by Mazin to the Head office of KKL consultancy.

The management and disciplinary Committee of KKL consultancy conducted the investigation and found KKL guilty for not investing the money received from the client in a proper way as directed by Mazin. According to the investigation report, KKL consultancy was found in violating and breaching the customer’s confidence and trust. It was found that the amount which was deposited by Mazin for investment was later invested by KKL employee for their own benefits. The case was further referred by customer to consumer protection court. This news circulated and was known by all the customers of KKL consultancy.

a. In your opinion, what would be the face saving solution for KKL consultancy, when their case is already under the hearing process at consumer protection court? What is the learning experience for KKL consultancy?

b. According to your observations, what were the gaps in the internal control system? How the internal control system can be more productive and effective to avoid the cases like KKL consultancy?

Answer 1

a)

This case is related to fraud by KKL Consultancy with Mazin. The Face Saving Solution for the KKL Consultancy is to refund back all the amounts to Mazin and if possible then with Interest too. Because here the case is already in the consumer protection court.

For insuring to its future customers KKL Consultancy should be issued the written guidelines for honesty and ethics in the working environment. Reduce the Cost for its services for gaining the trust and confidence of its customers and maintain proper internal control as well as work ethics in such a manner that no one is able to break those guidelines and work ethics.

It Should give written assurance to its customers that if it or its employees be found guilty of fraud in future, then its customers can get 10 times or more there investments so that customers' trust can be gained. And also issue strict warnings to employees and management so that they can follow the ethical principals in their work.

Here the Learning Experience for KKL Consultancy is not to fraud but every time must try to earn the income with Honesty and full Integrity. Businesses can not survive with cheatings and dishonesty in the long run.

b)

As per observation, I think that the major problem, in this case, is at times of disbursement of investment at the correct place after receiving from the client as well as at the time of depositing the due income taxes to the government.

Following Internal Control Measures can be taken in these types of circumstances.

For this KKL should ensure that when they are accepting the amounts from clients, that is deposited at required places where clients wanted it to be deposited. for this KKL should employ specialized professionals and make them responsible for depositing the amounts at correct places as well as record the timings and amounts as at what time and on which date it is deposited at the correct place.

After this proper signature of that professional(s) to be taken as the amount is deposited at correct places. Proper Receipt of deposit should be taken and Proper record should be maintained.

A person should also be employed for depositing government fees and taxes. Receipts should be recorded properly for depositing government taxes so that the chances of fraud can be minimized or totally removed.