Risk Review Report

No provision for training programs of members of the FARM Committee

It is important for the company to ensure that its risk-analysis methods are aligned with well-established methods and standards worldwide. One key guideline in AS/NZS ISO 31000:2009 is to make sure that their homegrown frameworks are apply the same principles. Although there would be no clear gauge in the degree of compliance of the company’s risk management framework with the current Australian standards, it would be an adequate compensating measure to expose those tasked with facilitating the risk management process, in this case the FARM Committee members, of these standards through continuing professional development.

The FARM Committee reporting on the internal controls of the company but not on the firm’s risk management measures.

It should be noted that although risk management measures and internal control address risks, their scope is quite different. Risk management measures covers all types of risks, their potential frequency, and impact that the business is exposed to while internal control focuses on those risks that affect the fairness of the company’s financial statements. The FARM Committee should not be focused on internal controls alone since this is the role of the audit department. While there could be similarities, the roles are dramatically different. While the audit’s role is to help the company understand what controls to place and how to implement them, risk management’s role is to determine how to get the most out of its investments in those controls and related processes. By narrowing down the FARM Committee’s focus on internal control, it could potentially expose itself of unidentified risks outside the scope of internal control such as external factors.

Food and Drinks

This refers to the quality and availability of the products that the café offers to its customers. This covers the selection of the finest quality coffee beans and ingredients and its eventual distribution to the company’s different stores.

Critical factors:

Supplier relationship, product differentiation, logistics, price, customer preferences

Service

One of the recent successful trends in the industry is to provide a unique experience to its customers. This covers customer service, and the general ambiance of the café that caters to the needs of its customers.

Critical factors:

Added services to its patrons such as WiFi, food and drinks delivery; employee training and professionalism; quality furniture, fixtures, and décor in the café; loyalty programs

Marketing and Branding

Marketing activities help boost the demand of the products of the café and increases or maintain its market share.

Critical factors:

Competition, customer loyalty, demographics

Human Resources Management

A committed workforce would greatly bolster the company’s ability to provide top-notch service. It helps make operations more efficient and decreases employee turnover, and, to some degree, the risk of asset misappropriation caused by the company’s employees.

Critical factors:

Job specifications, employee manuals, workplace health and security, employee benefits and incentives, work culture, career opportunities

Cost Efficiency and Financial Performance

The financial performance of the company would greatly affect its operations because it is the deciding factor whether a company will invest in a specific activity or not. It greatly affects all other main and support drivers.

Critical factors:

Operational expenses, revenue growth, ROI, abnormal losses through asset misappropriation or theft, litigation and penalties

Party

Demands

Role

Involvement

Employees

Internal

(High power, high interest)

· Better working conditions

· Job security

· Higher wages

· Front-liners in providing service to the customers of the company

· Ensure customer satisfaction

· Main driver of operational efficiency

· Cooperation and discipline greatly affects frequency of asset misappropriation in the company

Customers

External

(Low power, high interest)

· High quality service and products

· Reasonable prices

· Fuels the revenues of the company

· Customer loyalty gives the company competitive advantage and stable demand for its products

Suppliers

External

(High power, low interest)

· Higher prices

· Prompt payment

· Supplies the company’s products

· Cooperation ensures timely delivery to avoid stock-outs and ensures high product quality

Environment

External

(Low power, low interest)

· Efficient (lower waste) use of resources

· Proper waste disposal management

· Improves the company’s image

· Corporate social responsibility increases brand loyalty and decreases the chances of the company to be subjected to environmental penalties regulations

Investors

External

(High power, high interest)

· Higher financial performance

· Finances the company’s operations

· Fuels the company’s expansion and growth

Government

External

(Low power, high interest)

· Prompt payment of taxes

· Compliance with regulations

· Imposes regulations that affects the operations of the company

· Support from the government could mean regulations that have a positive effect on the performance of the company and support its growth

Party

Demands

Role

Involvement

Senior Management

Internal

(High power, high interest)

· Better working conditions

· Job security

· Higher remunerations

· Employment benefits

· Leadership and direction of the company

· Improved coordination between departmental functions of the company

· Improved performance of the company

· Communication of company’s corporate goals and strategies

Low-level Management

Internal

(Medium power, high interest)

· Better working conditions

· Job security

· Career opportunities

· Supervise the employees in their jobs

· Implements risk controls

· Increased cooperation and coordination of front-line employee functions.

· Reporting operational risk concerns to higher level management

FARM Committee

Internal

(High power, high interest)

· Better working conditions

· Job security

· Higher remunerations

· Employment benefits

· Monitors risk and formulates controls to mitigate risks

· Lower business risk

· Effective risk management system

Theft and misappropriation of assets

The risk of losings the company’s assets, especially cash, to theft or misappropriation because of the lack of segregation of duties and inadequate access controls.

Fraudulent financial reporting

The risk of the branch’s local management (manager and 2^nd in-charge) to misstate its financial performance or position to gain performance rewards or conceal asset theft. This is the risk caused by inadequate and inaccurate accounting records.

Medical expenses

The risk of the branch incurring medical expenses in behalf of its employees because of the dangerous route to and from the branch, lack of workplace health and safety standards, and the absence of policies dealing with workplace injury.

Litigation expenses

The risk of the branch incurring litigation and penalty expenses because of non-compliance with water-use regulations.

Loss of market share

The risk of the branch losing its customers because of the potential entry of a new competitor and the reluctance of the staff to market the company.

Inefficient operations and employee mismanagement

The risk of the branch to incur heavy losses because of the use of outdated equipment and the absence of work policies to coordinate efficiently the job of the employees. This also covers the risk of low cooperation from the employees because of the new management.

Stock-outs

The risk of the branch having stock-outs because of potential delays in the delivery of its products caused by the long distance between the supplier plant and the branch.

Banking Risk

Very likely. Cash is inherently very risky. Due to its liquid nature, it can be easily stolen and is it is hard to trace because it leaves no evidence other than the transactions entered in the accounting records. Furthermore, the branch does not implement the separation of the following duties: custody, authorization, recording, and execution over its cash transactions. The access controls over its accounting records is very poor making the prevention and detection of cash misappropriation to be very difficult even for an experienced auditor.

 Manager’s Travel Risk

Unlikely. Transportation accidents, in nature, are rare. However, notwithstanding the competence of the manager in driving, there is an added possibility of an untoward event because of the steep incline and the visibility hindrances in the route.

By-law Compliance Risk

Possible. Although it was stated that the company is currently wasting water and that non-compliant companies are likely to be discovered, the council is currently giving grace periods for the companies to “make-good” or revise their working policies and operations to be compliant with the new local legislation. This grace period shall be taken into context by decreasing the probability of litigation.

Loss of Brand Recognition Risk

Possible. Based on the inquiries made, there were two employees that were expected to have difficulties over the transition of the new policies. These two employees could indirectly influence the eventual non-compliance of other employees causing a rebounding effect among the staff.

Risk

Value Driver

Stakeholders

Assessment

Banking Risk

Financial Performance

(Support Driver)

Employees

(High Power, High Interest)

Investors

(High Power, High Interest)

Significant. It should be noted that although the amount is considered minor, the very nature of the risk itself poses a great threat to the company. Because of the high likelihood of theft every day, this minor amount could pile up to enormous amounts throughout the year when it is not prevented, detected, and corrected. This could greatly affect the financial performance of the firm, and although it is a support driver, it has a cascading effect throughout all other drivers. Considering that the stakeholders involved are the employees and investors that both have a great deal of power and interest in the company, their decision could greatly affect the company operations. The employees involved could influence other employees to do the same that fraud could potentially be so pervasive throughout the company’s operations when not mitigated.

Manager’s Travel Risk

Human Resources Management

(Support Driver)

Financial Performance

(Support Driver)

Low-level Management

(Medium Power, High Interest)

FARM Committee Member

(High Power, High Interest)

Severe. Due to the nature of the risk that it affects two support drivers, it could potentially cripple the operations of the branch. Moreover, the person involved is a low-level manager and a member of the FARM Committee, both positions commanding high power and interest over the company. The potential loss of expertise and large medical expenses could be catastrophic to the company.

By-law compliance risk

Marketing and Branding

(Support Driver)

Financial Performance

(Support Driver)

Customers

(Low Power, High Interest)

Government

(Low Power, High Interest)

Moderate. The potential litigation loss is regarded to be moderate. Coupled with the loss of branding, this risk could potentially be significant for the company. However, since the stakeholders affected are customers and the government, both commanding low power over the company’s operations, the consequence assessment is degraded back to moderate.

Risk

Value Driver

Stakeholders

Assessment

Loss of Brand Recognition Risk

Services

(Main Value Driver)

Marketing and Branding

(Support Driver)

Customers

(Low Power, High Interest)

Minor. Although the value drivers affected are services, and marketing and branding, the stakeholders affected are the customers that only command low power with the company. In spite of the threat of new competitors, it must also be noted that majority of the customers of the company are retirees. Numerous studies have found that people falling under the later age groups tend to stay loyal to the companies they are used to and comfortable with. They rarely change their loyalties.

Risk

Likelihood

Consequence

Risk Level

Banking Risk

Very likely

Significant

High

Manager’s Travel Risk

Unlikely

Severe

Medium High

By-law Compliance Risk

Possible

Moderate

Medium

Loss of Brand Recognition Risk

Possible

Minor

Lower Medium

Risk

Risk Level

Controls

Monitoring

Timeline

Responsible

Banking Risk

H

Segregate the functions of being the cashier, and the cash register balancing. After balancing, once there is a cash shortage, the cashier will pay for the deficiency. The cash will be placed in a safe deposit box. Make sure only the person assigned for cash register balancing can access the accounting record. This control procedure avoids the need to deposit the cash daily.

After every deposit of the cash in the safe deposit box to the bank, the manager will reconcile the bank deposit slip with the cash register records. Monthly bank reconciliation.

Opening week

CEO,

Financial Controller

Manager’s Travel Risk

MH

Install a teleconferencing system. This is to take advantage of the proximity of an internet service provider.

Assessment every after meeting if the control procedure was effective in the tardiness of the managers.

Within 6 months to give time for troubleshooting

CEO,

MacVille Board of Directors

By-law Compliance Risk

M

Introduce new processes on water use and conservation. Write new policy and procedures for water use in Toowoomba. These controls were chosen because of their low cost and since the risk is only classified as Medium.

Tracking of water usage from month to month.

Pre-settlement to give time for the processing and research of new process so that by opening week it would be introduced.

CEO with MacVille Board of Directors,

Goldsmith Partners

Loss of Brand Recognition Risk

LM

Implement a “fashion evening” uniform exemption on evening employees. The two employees will work on the evening shift. This is to have a youthful ambiance during the evenings.

Customer and employee feedback

Opening week

Store Manager

Risk

Plan

Outcome

Assessment of Risk

Banking Risk

1. An insurance worth AUD 5,000 to cover the loss of cash.

2.      Open a bank account in the first week of operations

3.      Training on daily banking

1. Insurance was not claimed during the year because cash was deposited every day at the bank (see number 3). The premium cost of AUD 2,500 was deemed to be excessive by the financial controller.

2.      The account was opened 4 weeks after operations. Different level of service from old bank.

3.      Training on daily banking have been successfully completed as planned. There were only two occasions where there wasn’t a banking entry for the day’s sales.

Likelihood decreased to UNLIKELY because of the success of daily banking training. Consequences remains to be SIGNIFICANT because of the losses incurred in the insurance coverage (was not used), and the inherent riskiness of the transaction. There were also no independent verification measures, such as bank reconciliations, conducted on the banking transactions to check for potential fraud. New assessed level of risk decreased to MEDIUM. The company should continue monitoring banking risk.

Manager’s Travel Risk

1. Install a teleconferencing system 6 months after operations

2.      Issue an excusal letter to allow the manager to be excused from the meeting at 3:00 pm

3.      Shift the assistant management trainings to the morning to allow the manager to leave at 1:00 pm.

1.      The installment of the teleconferencing system was delayed.

2.     No excusal letter has been issued. The manager stayed beyond 3:00 pm at the request of the head office team. The manager feels that he does not have the authority to walk out at 3:00 pm.

3.     The assistant management training has been shifted to the mornings. The manager leaves at 1:00 pm as planned

Likelihood remains UNLIKELY. The reduction in risks of the success in shifting the management trainings does not change the inherent riskiness of the road. Consequences remains SEVERE as there were no measures to ward against the consequences of the risk, such as insurance. Overall risk remains MEDIUM HIGH.

By-law Compliance Risk

1. Include a new policy regarding the compliance with the Toowoomba by-law on water conservation

2.      Changing the plants to natives.

3.      Installation of dual-flush toilets 6 months after settlement.

4.      Installation of 5 star rated (WELS) dishwasher 6months after settlement.

5.      Application to make good by Goldsmith Partners

6.      Training on water saving processes.

7. Install a water tank in the courtyard.

8.      Put up a weekly water usage monitor in the staff room.

1. Specific procedures have not yet been written, although there appears to be compliance.

2.      The plants have been changed as planned.

3.      Dual-flush toilets have been ordered and in stock, but it cannot be installed.

4.      The dishwashers were installed within the 6 months planned timetable.

5.      A grace period was given which ends in 14 days but the store is still above acceptable benchmark for water use.

6.      Training on water saving processes have been verbally explained and followed, the written procedure has not been completed.

7. Water tank had been built in to the courtyard but the plumbing has not yet been connected.

8.      The weekly water usage monitor has not been updated for the past three weeks.

Likelihood increased to VERY LIKELY. The measures were not effective since the company still operates above the acceptable benchmark. The measure of installing dual-flush toilets and the water tank cannot be realistically done within 14 days because of backlogs with the district plumber’s work. Consequence remains to be MODERATE. Overall risk is raised to MEDIUM HIGH.

Loss of Brand Recognition Risk

1. Explain the uniform compliance to the original staff. All original staff will now be responsible for directly supervising new employees.

1. All original staff are wearing the MacVille uniform. However, they are not explaining the uniform requirements to new employees and are not delivering any warnings for uniform non-compliance. There is an increase in uniform non-compliance.

Likelihood increased to LIKELY. The working policy failed to be sustainable and uniform non-compliance ended up to be more pervasive than initial assessment. Consequence remains to be MINOR. Overall risk is remains at LOWER MEDIUM.

Overall Risk

1. Arrangement for one internal audit.

2.      There would be a call every two months with the internal audit.

1. Internal audit and calls went as planned. The infrequency was because of the travel time and overloaded work of the internal auditors with the Brisbane stores.

Likelihood is assessed at LIKELY. The possibility of the internal auditors not being able to conduct a physical audit of the branch is high because of the ineffectiveness of Travel Measures. Consequence and overall risk assessed at MODERATE, and MEDIUM, respectively because of its significance.

1

Rare

Highly unlikely, but it may occur in exceptional circumstances. It could happen, but probably never will.

2

Unlikely

Not expected, but there's a slight possibility it may occur at some time.

3

Possible

The event might occur at some time as there is a history of casual occurrence at the University &/or similar institutions.

4

Likely

There is a strong possibility the event will occur as there is a history of frequent occurrence at the University &/or similar institutions.

5

Almost Certain

Very likely. The event is expected to occur in most circumstances as there is a history of regular occurrence at the University &/or similar institutions.

1

Insignificant

Minimal financial loss; Less than $300,000

No or only minor personal injury; First Aid needed but no days lost

Negligible; Critical systems unavailable for less than one hour

Negligible impact

Resolved in day-to-day management

2

Minor

$300,000 to $2M; not covered by insurance

Minor injury; Medical treatment & some days lost

Inconvenient; Critical systems unavailable for several hours

Adverse local media coverage only

Minor impact

3

Moderate

$2M to $5M; not covered by insurance

Injury; Possible hospitalisation & numerous days lost

Client dissatisfaction; Critical systems unavailable for less than 1 day

Adverse capital city media coverage

Significant impact

4

Major

$5M to $10M; not covered by insurance

Single death &/or long-term illness or multiple serious injuries

Critical systems unavailable for 1 day or a series of prolonged outages

Adverse and extended national media coverage

Major impact

5

Catastrophic

Above $10M; not covered by insurance

Fatality(ies) or permanent disability or ill-health

Critical systems unavailable for more than a day (at a crucial time)

Demand for government inquiry

Disastrous impact