Question

In: Accounting

Subject Name: Accounting Theory KKL consultancy Muscat provides tax and financial advisory services to their customers....

Subject Name: Accounting Theory
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? (400 words)

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? (400 words)
please answer from your own words and reply as soon as possible .

Solutions

Expert Solution

a. Here, in this case, the misbehavior is done by one of the employees of KKL consultancy. This behavior will have a long term impact on the reliability of the consultancy unless it is solved without damage. The case is already under hearing process.
Develop your answer with the following jey points.
- Under this critical situation, it is advisable that, KKL authorities should repay the amount given by Mazin, that is, OMR10,000, along with a reasonable amount of compensation. Hence, the case can resolved by outside settlement.
- Adequate steps should be taken to punish and terminate from service, the employee who conducted this act.
- A press release also can be conducted informing the public about the issues and appolagising for the same. It will help the consultancy to rebuild customer's confidence and trust, some extent.

- There is should be proper internal control system fo managing and monitoring the affairs of employees and workers. The feedback, reporting system of the organization should function well.
-Without internal controls, a business operates inefficiently, in an unreliable manner and out of compliance with applicable laws and regulations.
- High rates of customer dissatisfaction, poor performance of staff and lack of lucrative business partnerships reflect a business that lacks direction and focus.
Waste, inefficient use of resources, poor management decisions, high rates of productivity errors, loss of records, carelessness and mistakes generally demonstrate poor business practices and ineffective management.

b. We can observe the following gaps in the internal control system.
- Lack of formally established executive management team to monitor the affairs.
- Lack of proper documentation, maintenance or periodical reviews of various aspects that would support the internal controls.
- Lack of ability of internal control system in addressing all forms of fraud, including threats that could potentially be coming from inside the organization.

Following measures can make the internal control system more effective and productive.
- Framing written goals and objectives including, operational objectives, Financial reporting objectives, Compliance objectives, etc.
- Ensure that, Internal controls benefit rather than encumber management.
-Internal controls make sense within each organization’s unique operating environment.
-Internal controls are woven into day-to-day responsibilities of managers.
-Provide accountability
-Encourage sound management practices
-Encourage proper resource management.
-Control policies and procedures must be established and executed to help ensure that management directives are carried out.
- Establishment of strong information and communication systems to enable the organization’s people to capture and exchange the information needed to conduct, manage and control its operations.
-Schedule monitoring on a regular basis
-After implementing internal controls, organizations must monitor their effectiveness periodically to ensure that controls continue to be adequate and continue to function properly.


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