Paredes Optical Company, Inc.
Organizational Chart

Case Observations:
Weak points of current control system of Paredes Optical Clinic on Ms. Pimentel’s (Chief Accountant) perspective: 1. Delay in Reports: Reports from the branches located outside Metro Manila are sent to the Manila Head Office through passenger buses every other day while reports from Metro Manila branches are received daily. 2. Difficulty of ascertaining the true level of branch revenues: During monthly meetings, Ms. Pimentel provides top management with past sales and expenses data for the last five years together with forecasted conditions for the coming year. Some branches exceed the sales budget while some are always below the forecast. Ms. Pimentel, the chief accountant, attributes negative sales variances partly to unrecorded sales and tampering of official receipts. Unrecorded sales or receipts may be done in several ways, examples: a. To provide repair service without the issuance of official receipts. b. To use spare parts of a “good” frame when servicing an order for repair instead of taking the part form the spare parts inventory. The frame from which the part is taken is later on declared as defective. c. The branch staff services orders from customers using the company’s own suppliers. 3. Connivance: Ms. Pimentel believes that this practice implies that personnel at the branches connive with each other in not reportin some revenues for the branch.

Statement of the problem:
In view of these cases, Ms. Pimentel is proposing to top management that a review of the company’s internal control system be made. Mr. Francisco, the VP for Finance, however, thinks that there is nothing wrong with the internal control system. He, instead, requested Ms. Pimentel to come up with more reasonable budget figures in order to minimize the variances next month. * Is a review for company’s internal control system necessary? Evaluate the Planning and Control system of the company. * How can the company use the “budget” as an effective control tool at the branch level?

Recommendation:
Upon evaluating the weaknesses of Paredes Optical Clinic internal control system, I would recommend a review on its process. Since the company is expanding locally and globally, control system needs to be changed. Ms. Pimentel observations as weaknesses of the current control system can be remedied early on, where changes can be made rapidly and at less exposure to loss. Physical controls include security over the assets themselves, limiting access to the assets to only authorized people and periodically reconciling the authorized people, and periodically reconciling the quantities on hand with the quantities recorded in the organization’s records. Since the company is growing vastly, I suggest that it is about time for them to invest on CCTV camera to further control the operation of each unit. A global accounting system should also be considered to record financial transactions of units efficiently and effectively.
Budget or Quota for branches can be an effective control tool as long as it is realistic and atttainable. We can also provide incentives for those who attain the budget. Set up a profit sharing plan. For example, each branch manager's incentive compensation can be based on the profit of his or her store. By recruiting well-motivated managers and frequent financial reporting the company may limit its exposure to big losses. By rewarding managers through profit participation, we create the engine that will drive the managers to success. And, the greater their success (and reward), the more the overall business will benefit.