The purpose of this report is to provide recommendation to the Credit Controller of Excel Poultry and Meat (EPM) Sdn Bhd, Ms Choy on the strategic direction to be taken in relation to alternatives on disclosure. Organization ChartExcel Poultry and Meat (EPM) Sdn Bhd is the subsidiary of PCK holding since 2005 was managed by Encik Selamat. It became one of top 5 chicken suppliers within mid-tier producers in the country due to increasing demand in year 2000 from superstores and fast-food chains, high chicken consumption by Malaysian, and expansion of chicken industry. However, in 2008, the company faced operational crisis such as the cost of poultry production increased where EPM operating cash was low and severe.
Other problem identified in the management of EPM is where Ms Choy, the credit controller, had discovered that the marketing department continued to supply products to Cold Gold Sdn Bhd, one its major customers, even though the company’s credit has exceed its limit.However, the Board of Directors (BOD) were reluctant to take any action against Encik Selamat in the case of Encik Munir’s situation, since he was very well-connected and has a good reputation at previous company. Hence, since Ms Choy has no direct authority to take any action, she is currently in a dilemma on which directions to take in order to save the company’s business. Ms Choy has the choice to disclose her findings to the external auditors or straight away to the Board of Directors where this could lead to several advantaged and disadvantages to it. In addition, there are a lot of things that she needs to consider since whistleblowing is a very controversial issue. The drawbacks of her disclosure may affect her position as a credit controller and her relationship with top management and Encik Selamat.
However, it might be the only way to resolve the firm’s continuous financial crisis. Ms Choy can also opt to not disclose anything at all to anyone, but doing so might lead the company into bankruptcy since they could not handle all the financial obligations. Moreover, her employers may continue to exhibit their wrongdoings considering no one knows about it. Therefore, there are several evaluations that will be reviewed in this report to ensure the best decision is made in relation to the problem and alternatives mentioned here.This report will examine the several alternatives available to address the problem above that will need to be taken into consideration at arriving at the best decision.
It will contain several analyses including SWOT analysis, cost analysis and business analysis. At the end of this report, we will provide recommendations on the best course of action based on the analyses done with a detailed implementation to execute the plan.Projected cash flow analysisInterpretation details showed the analysis of EPM Sdn. Bhd. during year 2008.
Poor Budgets, cash flow forecasts and business plansEPM Sdn. Bhd business’s most basic need is a budget and cash flow forecast on which a general manager can make informed decisions. Whereas on Figure 1 showed the projected and forecasts of cash flow statement of EPM Sdn. Bhd in year 2009 should have a science behind them and not be based on ‘gut feel’. Historic data from the business is likely to be the most useful, coupled with industry data, interpretations of broader economic shifts and future anticipated events consists of financial and non- financial for the specific business.
Forecasts should be queried continually during the year, testing their assumptions and monitoring any deviations.Any increase in the time it takes to pay creditors may indicate the company is experiencing financial difficulty. Of course, each industry has different benchmarks, though generally creditor accounts exceeding 45 days would raise the eyebrow of an astute director or advisor. Particularly over time, if the ageing of creditors increases, the business may be experiencing difficulty in meeting normal payment terms.
Making on-time payments to one creditor rather than another, and lump sum payments to satisfy demanding creditors, are indicators that the business has to priorities its payments to satisfy the most essential suppliers first, with its limited funds available.For example, in the case of Excel Poultry & Meat Sdn. Bhd. (EPM), Ms Choy had discovered that one of the major customers had gone into the level of ageing analysis of customers that having credit limit for Cold Gold Sdn.
Bhd., but she noticed that the marketing department still continued to supply to the company without take an initiative to ask the company to pay the outstanding.Poor record keepingA business’ ability to maintain accurate and organized records is a good indication of its overall well-being. A lack of financial records maintained in accordance with the Corporations Act gives rise to a statutory presumption of insolvency.
When a business is experiencing difficulty, its management can tend to focus less on maintaining up-to-date records and this lack of currency can be a warning sign for impending failure. Education by the business advisor is well placed to curb poor procedures in the business’s record keeping efforts.For example, EPM actually have faced two problems of poor record keeping which are Mr Siva, one of the retail customers with small account and his complaint that the figures on the statement of accounts sent to him were incorrect. Apart from that, Mr Siva do not have any outstanding balance in his account as all the cash payments had been made to Encik Munir whose is one of the former staff at the finance departments.
These two problems had showed EPM’s finance department having the poor record keeping on their accounts balance. From this entire scenario, Ms Choy was confused especially seeing confirmation letters that had come back with figures that did not tie up with balances in the accounts.Clear signs a business is struggling to make payments are bounced cheques, dishonoured payments, and withholding signed cheques or authorised electronic payments. Any business that experiences dishonoured payments is demonstrating its inability to make payments when due and will most likely not have the financial capacity to make payments within terms.
For example, EPM Sdn.Bhd. under finance department had mistakenly issued cash payments to Encik Munir whose is the one of the former staff at the finance departments.When a business has a history of delayed payments to creditors, some suppliers may place it on cash-on-delivery terms or reduce its trading terms.
Any change in the credit terms offered to a business would raise concerns over its ability to make payments on time. Payment plans entered into with creditors are a common means to managing overdue accounts and can indicate the business is experiencing difficulty in paying debts when due. Consignment supplies should be monitored to ensure they are recorded correctly on the business’s balance sheet. A search of the Personal Properties Securities Register can be easily conducted to determine if any supplier interests have been recorded against the business’s stock.For example, EPM Sdn.Bhd.
should stopped continue supply to the Cold Gold Sdn.Bhd. since the company are the major customer has the large amount of outstanding balance towards EPM Sdn. Bhd.
Interpretation of the Projected of Cash Flow Statement for Excel Poultry & Meat Sdn.Bhd. on 4 quarterly in year 2009.The Figure 1: the estimation of figure Projected of Cash Flow Statement for Excel Poultry and Meat Sdn.Bhd.
(EPM) for 4 quarterly in year 2009. The projected figure of cash flow statement of EPM for 4 quarterly in year 2009 is simply projection of the timing and amount of cash flow into business from all sources, including loans, sales, government grants and owner’s contributions, and the timing and amount of cash flowing out of the business due to operating expenses, capital purchases, loan payments and withdrawals for living costs.These projected statements are prepared for each year divided into weekly, monthly (most common) or Quarterly time periods which shows in Figure 1. These projections are necessary to determine if sufficient cash will be generated and available from business to cover expenditures when they are due to be paid. Interpretation of the Projected of Cash Flow Statement for Excel Poultry & Meat Sdn.
Bhd. on 4 quarterly in year 2009 (Continued) From Figure 1, EPM Sdn.Bhd. actually will go into insolvency scenario that discussed above to face in net cash flow loss RM 117,016 in year 2009.
(RM 415,000-RM 532,016) if EPM Company continued to have the top management of leadership style, lack of internal control system on sales and collection processes, flaws in internal reporting channel as well as issues on professional ethics and conduct of an accountant in future. As a conclusion, in order to avoid this insolvency happened under EPM Sdn. Bhd. As we are the consultants, we suggest that Board of Directors need to take an initiative action and recommendation to avoid those issues happened in EPM Sdn.Bhd.Fish bone diagramGeneral Manager focuses on non-management issues such as social and community work instead of business activities.
Encik Selamat thought it was time to be actively involved in social and community work and starts delegating his task to others. General Manager delegates important tasks which have been closely monitored over years, especially the finance matters, to new; young “star staff’. One such person is Encik Kassim who is trusted to manage finance of the company. Top managers who act on personal interest rather than for company’s benefit.
The General Manager, Encik Selamat personally benefited from the ‘deal’ with director Cold Gold Sdn Bhd. Under table deal between the general manager and the client. Ms Choy discovered a ‘deal’ between Encik Selamat with one of the Cold Gold Sdn Bhd’s directors.The credit limit of Cold Gold Sdn Bhd has gone into its level and yet Encik Selamat has instructed the marketing department to continue to supply products to the company as part of the deal.
He also has said to the Cold Gold director that things would have been difficult if he BOD asked him to proceed with legal suits but he do not choose to do that for the treasure the ‘comradeship’ with the director of Cold Gold Sdn Bhd. Director of EPM lacks leadership skills and ethical awareness as he kept silent on the unethical behaviour of the general manager. The director was reluctant to take any actions against Encik Selamat, since he was very “well-connected” and had a good reputation at the previous company.The operating cash flow was systematically running low. Lack of coordination in control and reporting has resulted in insufficient cash flow.
The finance of the company which was closely monitored over years by the general manager has been delegated to new, young “star staff’. Significant increase in short term borrowing. The severity of the insufficient cash flow has resulted in significant increase in short term borrowings in order to meet its operating obligations. High outgoing expenses.
Increase in production cost has increased expenses. The estimated production cost has risen about 56.5% to RM5.04 per kilo.
The exorbitant price of chicken feed also increased outgoing expenses to a point where it resulted in operating losses. Credit limit had gone into its level. Credit controller, Ms Choy discovered from the aging analysis of customers that the credit limit of Cold Gold Sdn Bhd, one of its major customers had gone into its level.Internal controlThe fact that Ms Choy has received confirmation letters that shows figures do not tie up with account balances indicates that no reconciliation of accounts has been done. Lack of segregation of duty gives opportunity for misstatements in the statement of accounts send to customers.
Mr Siva, one of the retail customers complained that the accounts statements sent to him is incorrect. The fact that staff has not disclosed the receipt of payment from customers shows no authorization of receipts had been done. Encik Munir had not disclosed the receipt of payments from customers and the customer, Mr Siva, said he had made cash payments to Encik Munir but he were sent incorrect financial statements with outstanding balances. Cash receipts have to be authorized by at least two personnel to avoid fraud and theft of cash.Company failed to predict possible increase in production cost that leads to low profit making. The estimated production cost has risen about 56.
5% to RM5.04 per kilo. FLFAM made a call for higher chicken prices which resulted in drop in demand Exorbitant price of chicken feed is the major cause of the operating losses.Marketing strategies which has been closely monitored for years by much experienced staff (the general manager) has been delegated to a new, young staff (Encik Kassim). The young staff was trusted to manage finance matters and marketing issues. Marketing department exploited by Encik Selamat for personal interest.
His main intention is to protect his relationship with Cold Gold Sdn Bhd director who happens to be his best friend during college days. Credit limit of Cold Gold Sdn Bhd has gone into its level and yet the marketing department continued to supply products to the company whose account has been outstanding for a long period with significantly high amount. The marketing department informed that this is due to the instruction from the general manager, Encik Selamat.The general manager of EPM lacks expertise in poultry and meat industry Ms Choy in dilemma whether to disclose the issue or not.
She is also afraid that her relationship with the general manager will turn sour if she chooses to disclose Customers are angry with EPM’s statement of accounts to them. Mr Siva , one of the retail customers complained that the accounts statements sent to him is incorrect.
