Case Study on Petrol Station

Topics: Internal control, Control system, Control engineering Pages: 8 (2736 words) Published: March 8, 2011
Mat Jon was the owner of Jon Enterprise who owned the Spetrol station located along the BPK Highway. Spetrol was acknowledged as one of the big players in domestic petroleum products industry. However, Jamel who Mat Jon’s nephew was on boarded of the operations of the pump station and he did not participate in the business operation since he was in his post retirement years. At the start, the business was doing convincingly well, this success was helped by the strategic area that petrol station been located. Nevertheless, the business was performing gradually bad and the profit was declining significantly. Jamel argued that this was due to the emergence of new competition; 2 new petrol stations were operated at the same location. An old colleague of Mat Jon, Robert Leung made an offer to acquire the business regardless of knowing the unfavourable condition the station was stumbling. As a result, he asked Jamel to prepare him the financial performance and he had to analyze it meticulously before taking into consideration to accept Robert’s offer. After made the assessment on the financial position of the business for a three recent years, Mat Jon discovered a few peculiars in the reports Jamel had given him, setting him in reservation of his nephew’s responsibility. He met Jamel and started giving a lot of questions and his unsatisfying towards his nephew. However, Jamel was not confidently answering the questions and trying to hide some facts what actually happened. Mat Jon then confronted Sudin, the supervisor of the pump station to get an explanation about the entire midst, and Sudin informed him of a complaint made by a regular customer, saying that he was scammed by a pump attendant and no action was taken.

All these revelation were led by the analyzing of financial position for helping Mat Jon in doing decision whether to sell off the pump station or not. Mat Jon contacted his friend, Fuad, an accountant, to assist him with the petrol station accounts.

2.0 STATEMENT OF PROBLEMS Based on the case, we can determine there were three major issues to be discussed and analyzed. The problems were: i) The symptoms of fraudulent in Spetrol’s management.

ii) The lacking of accounting documentation, internal control system and professional ethics. iii) The dilemma whether to continue operating the business or selling-off the pump station.

3.1 Lack of adequate internal control system
Internal control defined as a process affected by an organization’s structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals and objectives. It plays an important role in preventing and detecting fraud as well as protecting the organization’s resources, both physical and intangible. The Committee of Sponsoring Organization of the Treadway Commission (COSO) defined internal control as: A process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1. effectiveness and efficiency of operations,

2. reliability of financial reporting, and
3. Compliance with applicable laws and regulations.
Top management must ensure that the internal control systems were implemented on their management and operation in order to all business matters run smoothly. In every organization, it has a different internal control system because of different in type and nature of business in organization. If organizations fail to control their internal control system, it will be one of main reason failure in the business. In Spetrol Station, lack of adequate in internal control system had caused company face critical problem. It can be seen in financial control, physical control and documentation procedures. 3.1.1 Financial control...
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