Goodner Brothers, Inc.

Cases 3.5 Goodner Brothers, Inc.

Goodners Huntington sale office had no real internal control objectives. As stated in the case the controls were almost nonexistent and management was lax as it relates to controls. The objectives should have been in place by the company;

1. Reliable financial reporting - the objective here is ensure that financial records, mainly accounts payable and accounts receivable, are correct and reliable ensuring that money is not being embezzled or posted to incorrect accounts.

2. Effective & Efficient operation - the objective here is to have a minimum standard of operation that would provide a greater result in the end. Having more frequent performance reviews would aid in having a more efficient operation.

3. Compliance - it should have been the objective of the company to see to it that all employees follow the rules of the company's internal controls and laws in general. Woody selling defective tires would be considered unlawful and could have cost the company in a law suit.

4. Safe guarding of Assets - the objective here would be to minimize access to the company's assets and to maintain an accurate count of all tires.

Goodners Huntington unit had quite a number of weaknesses and seemingly had no measure in place for internal control. Such weaknesses are;

Control Environment - The tone from the management created a major weakness. There was no sense of control in place since management in an effort to cut expense did not invest in proper control systems. Garcia admitted that his job is to sell tires and sell them as quickly as possible. So, the sales manager himself had no interest in the controls of inventory. The sense of the environment is that everything was based on trust.

Separation of duties - Woody was simply too involved in many areas of the company. As the person making the sales with customers he should have never been allowed to delivery those same sales. Goodner should have hired a storage manager and as such woody should not have had full access to the storage facilities. Also woody should not have been able to carry out some of the functions of the bookkeeper. In essence woody had authorization and custody privileges.

Information processing controls - Woody as a sales person had full access to the accounting system. As stated he was able to enter transactions directly into the system. As a result he was not only able to record sales but also credits & debits to a customers account as he so chooses. Such access should have only been given to the bookkeeper and the Sales manager.

One policy I would implement is to have every employee, including owners, undergo a yearly internal control class. At my current job with a federal agency it is mandatory for us to complete yearly classes