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Background

Write the Report on Organizational Risks in Fruito.

Fruito, the largest fruit shop in Australia selling fruits and vegetables to retail markets as well as directly to the the customers. They also supply their products to hotels and restaurants.

The procedure of internal control is planned to offer required assurance for achieving the objectives of operation, compliance, strategy and reporting (Chan, 2016).  Management of risk is an essential segment of internal control. The management of risk is essential for attaining the aim of managing and predicting the probable risks and finding the way to eliminate them (Munsif, Raghunandan & Rama, 2012).

The aims of this report are:

  • To recognize the risk in financial level, risk of mishandling the assets and risk of mishandling the products and the effectiveness and correctness of operations and identifying the role of internal control (Maughan et al., 2016).
  • To identify the effect of the risks on the business of the organization;
  • To suggest the methods to eliminate or reduce the risks (Kersting & Wollni, 2012).

The main purpose for the cycle of expenditure is to alter their cash into human resource and physical materials needed to operate the business. As like other organizations, “Fruito” also conducts their business on credit payment system and makes the payment after receiving the stores (Reynolds et al., 2015).

The time gap between the receipt of stores and payment for the same divides the procurement procedure into two stages: (1) Physical stage, which includes the acquiring of the stores (2) Financial stage, which involves the payment of cash.

As the payment is made after the receipt of goods, there is chances that the payment may not match with the cost booked for orders, if proper system for raising invoice and voucher for payment are nor reconciled. The requisition list and received items list should be matched properly. As the company’s records are maintained in manual basis, there is great chance of misstatement of data for purchase, receipt or payment. After the receipt of goods, they are not transferred to warehouse immediately. As fruits and vegetables are perishable products, there is a high possibility that the goods will be perished and will result in loss for the company. In the system of payment, only one person is engaged with the job of making all the payments and keeping the records. Therefore, chances are there that he may make mistakes or may manipulate the data for his personal purpose. In few instances, the payment voucher does not contain the signature of higher authorities (Harsono et al., 2013).

Fruito’s purchasing system starts with the preparation of requisition order after checking the inventory level of the fruits and vegetables in the warehouse and completes with the receipt of stores. Risks involved with the process of receiving and ordering and their effects are:

After checking the inventory level, they prepare the requisition for order manually. Manual order preparation is susceptible to misstatement and chances are there that wrong quantity for orders are placed.

The raw materials required for Fruito’s business are fresh fruits and vegetables from local farmers. As most of the fruits are seasonal in nature, it may hamper the business activity if required quantity is not received (Seymour et al., 2013).

After receiving the stores, it takes some time to send the goods to warehouse. There are high chances that the fruits and vegetables will be rotten as the goods are of perishable nature.

Aims

As the fruits and vegetable are of seasonal nature, Fruito needs to maintain high level for inventories. Despite of taking measures to preserve the fruits in good condition, there are chances that the goods will be perished.

Processed vegetables and fruits are sold to retailers and direct customers for credit. It generally takes 30-60 days for receipt of payment. Huge amount of money involved with the debtor affect the company’s financial viability (Cerutti et al. 2014).

To mitigate or reduce the above listed risks, the company must follow the following recommendations:

Install the computer system to maintain the data rather maintain the data in manual basis 

preparation of order requisition and order placing quantity should be cross checked by any higher authority

Fruito should communicate with more suppliers, so that required quantity of raw material can be obtained easily

They can maintain higher inventory level for seasonal fruits and vegetables (Ashurst, 2016). 

Goods should be transferred to the warehouse immediately to protect them from perishing

The fruits and vegetables which are of more perishable nature should be processed first to reduce the chances of perishing.

Fruito should use better preservation system to minimise the perishing level

They should use modern amenities in warehouse to keep the vegetables and fruits in fresh condition.

 As the sale is made in credit system and payment is received in 30-60 days,  Fruito can engage one debt collector who will collect the debt in short period in exchange of commission.

Fruito can introduce discount system for payment made before the expiration of time. This will influence the debtors to make payment on time (Tracy & Wright, 2016)

Risk

Impact

Recommendation

Way to mitigate

3.1. Manual preparation of requisition

3.2. Shortage of supply

3.3. Goods not sent to warehouse immediately after receipt

3.4. Fruits and vegetable are of seasonal nature

3.5. Long-term credit

Misstatement of quantity

Hamper the business activity

Vegetables and fruits are perished

Needs to maintain high level for inventories

Huge amount of money involved with the debtor

4.1.(a)Prepare the requisition in computer

(b)The invoice should be properly authorised

4.2.(a)Contact other suppliers

(b)Maintain high level of inventory

4.3.(a) Goods should be transferred to the warehouse immediately

(b) More perishable goods should be processed first

4.4.(a) Should use better preservation system

(b) Use modern amenities in warehouse

4.5.(a) Can engage one debt collector

(b) Introduce discount system for early payment

Install computer system in the company and maintain the record in that

Efficient and reliable supplier should be contracted.

More employees should be engaged for handling the received goods

Establish new warehouse with better preservation system

Debt collector should be engaged in terms of payment of commission

 Table 1: Risk factor and recommendation

(Sources: As created by author)

Conclusion

From the above discussions, it can be concluded that, the purpose of this report is to find out the importance of internal control in the business process, the risks involved with the order and receipt process of inventories and the recommendations to minimise the risks. It is found from the report that the main issue with the company Fruito is that they maintain their records in manual system. Other issues involved in their business are the warehousing of the goods, processing of the goods and receipt of payment. To reduce these risks, the company should install computer system in their offices, manage the payment system through hiring debt collector and process the raw materials in accordance with their perishable level.

Reference: 

Ashurst, P. R. (2016). Chemistry and technology of soft drinks and fruit juices. John Wiley & Sons.

Cerutti, A. K., Beccaro, G. L., Bruun, S., Bosco, S., Donno, D., Notarnicola, B., & Bounous, G. (2014). Life cycle assessment application in the fruit sector: state of the art and recommendations for environmental declarations of fruit products. Journal of Cleaner Production, 73, 125-135.

Chan, D. K. W. (2016). The effects of internal control reporting regulation on Control Quality, Compensation and Audit Quality. In Workshop on Accounting and Economics, EIASM 2016.

Harsono, S. S., Grundman, P., Lau, L. H., Hansen, A., Salleh, M. A. M., Meyer-Aurich, A., ... & Ghazi, T. I. M. (2013). Energy balances, greenhouse gas emissions and economics of biochar production from palm oil empty fruit bunches. Resources, Conservation and Recycling, 77, 108-115.

Kersting, S., & Wollni, M. (2012). New institutional arrangements and standard adoption: evidence from small-scale fruit and vegetable farmers in Thailand. Food Policy, 37(4), 452-462.

Maughan, T., Drost, D., Olsen, S., & Black, B. (2016). Good Agricultural Practices (GAP): Certification Basics.

Munsif, V., Raghunandan, K., & Rama, D. V. (2012). Internal control reporting and audit report lags: Further evidence. Auditing: A Journal of Practice & Theory, 31(3), 203-218.

Reynolds, C. J., Piantadosi, J., Buckley, J. D., Weinstein, P., & Boland, J. (2015). Evaluation of the environmental impact of weekly food consumption in different socio-economic households in Australia using environmentally extended input–output analysis. Ecological Economics, 111, 58-64.

Seymour, G. B., Østergaard, L., Chapman, N. H., Knapp, S., & Martin, C. (2013). Fruit development and ripening. Annual review of plant biology, 64, 219-241.

Tracy, J., & Wright, J. (2016). Payment changes and default risk: The impact of refinancing on expected credit losses. Journal of Urban Economics, 93, 60-70.

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