II

Financial Accounting Term Paper

Institute of Business Administration, University of
Dhaka
on the

Evaluation of the Internal Control System of Singer Limited

 Course: Financial Accounting-I

Course Code: A101

Batch: BBA-25th

Date of Submission: May 11,2017

Submitted to: Submitted by:

Dr. Mohammad Mohiuddin Aateeya Saabeen(RH-10)

Associate Professor Radh Sharer Ahmed Arnab(ZR-20)

Institute of Business Administration Shegufta Armin Ahsan(RH-26)

University of Dhaka Mohammad Arefin Chowdhury(ZR-98)

Azman Anju Khan Chowdhury (BB-34)

 III

Letter of transmittal

May 11, 2017

Dr. Md. Mohiuddin

Associate Professor

Institute of Business Administration

University of Dhaka

Dear Sir,

We, the students from BBA 25th, Section B, have prepared this report on ‘Internal Control
System of Singer Ltd.’ that you had assigned to us one month ago as a requirement for
completion of the ‘Financial Accounting-I’ course (Course code: A101). Preparing this report
has been an important experience for us, as we have thoroughly mastered the various concepts
taught in the course through exposure to real corporate world. We appreciate your help and
moral support in this regard. We apologize for any errors.

Please note that this report has been prepared under your direct supervision. Under no
circumstances, will this report be produced for any other BBA (IBA) course ever. No part of this
report will be shared or re-published without your authorization.

Sincerely yours,

Aateeya Saabeen(RH-10) Azman Anju Khan Chowdhury(BB-34)

Radh Sharer Ahmed Arnab(ZR-20) Mohammad Arefin Chowdhury(ZR-98)

Shegufta Armin Ahsan(RH-26)

 IV

Table of Contents

Topic Page Number

Letter of Transmittal III
Table of Contents IV
Executive Summary 05
Methodology 06
Company Overview 07
-Mission
-Vision
-Core Values
Prerequisite of a sound internal control system 09
Hierarchy 11
Importance of Internal Control System 12
Defining Key Concepts of Internal Control 13
System
Evaluation of Singer Bangladesh’s Internal 15
Control System from a Principles Perspective
-Establishment of Responsibility
-Segregation of Duties
-Documentation Procedures
-Physical Controls
-Independent Internal Verification
-Human Resource Control
Management’s Approach to Internal Control 18
System
Recommendation 20
Conclusion 21
Reference 22
Questionnaire 22
 5

Executive Summary

Internal control plays an integral role in the success of a company. So the importance of a sound
internal control system cannot be denied. It assures the company’s effectiveness as well as its
efficiency. Internal control also ensures the reliability of the company’s financial reporting, and
that it complies with the existing laws, regulations and policies. It is also the tool which directs,
monitors and measures the organization’s resources. It is also important in preventing fraud and
protecting the organization’s resources, including both physical and intangible ones.

Singer Bangladesh has been operating in this region since 1905. It is now a retail giant,
distributing the products of many world-known brands along with their own products. It also got
listed in the Dhaka Stock Exchange in the year 1983 and in the Chittagong Stock Exchange in
the year 2000.

This paper has been designed to evaluate the internal control system of Singer Bangladesh
Limited through the application of the theoretical knowledge received from the textbooks and
contrasting it with the methods followed by the company. This has been done with the help of
the internal audit department of Singer Bangladesh Limited along with ample support from
executives in other departments. The system was found to be quite sustainable although some
specific recommendations have been given at the cessation of the report.
 6

Methodology

As per the topic of our study, we had to do a detailed analysis of the process of internal control
system of Singer Bangladesh Limited. We have prepared this report on the basis of the data from
various sources on the internal control system and with the practical experience of visiting the
organization and talking to experts and auditors. For conducting the analysis, we had to collect
theoretical data that was necessary from our textbooks, but what helped us most in conducting
this study was the organizational visit and the interview with Abu Zafor Md. Kibria, head of
internal audit who helped us a lot to understand the significance of having a sound internal
control system, especially in an organization like Singer Bangladesh Limited which is one of the
major and most successful companies in Bangladesh in the consumer durable sector.

We conducted the research on the system of internal control of Singer Bangladesh Limited from
the perspective of the six basic principles of a sound internal control system which management
sets up and implements to ensure that the assets are safeguarded.

The fieldwork entailed and the assignment preparation for conducting the research on Singer
Bangladesh Limited’s internal control have allowed us to understand the various theories
acquired in the classroom for simultaneous understanding and application, but also helped us to
gain experience through exposure to the real corporate world. But overall, the whole report has
portrayed a brief description of the importance of having a sound internal control system for
reducing the loss of asset, and to assure the reliability of financial statements.
 7

Company Overview

Our primary target was to evaluate a Multinational Company which is publicly traded in
Bangladesh. This is because these companies bring in much experience, discipline, and fresh
ideas from their parent companies. Thus the structures of these companies are usually more well
defined than those of the local companies. Luckily Singer Bangladesh Limited matched our
preferences.

The first Singer sewing machines went on sale at Chittagong and Dhaka stores in 1905; at that
time the country was a part of the Indian subcontinent. From a single brand single product
company, Singer grew into a huge company with revenue exceeding Taka 7,000 million,
continuing to be one of the favorite brands of Bangladesh. The Company's successful multi-
brand strategy combines products of world's famous brands with the Company's own brands.
Today, Singer Bangladesh Limited is a large, diversified company and remains a member of the
worldwide franchise of Singer. It is one of the largest and most successful companies in
Bangladesh in the consumer durable sector. Singer's success over the years is attributed to its
uncompromised focus on service excellence and the extensive country-wide presence. With over
374 retail outlets, 395 dealers and extensive service network, Singer tries to assure the people of
a speedy and reliable pre and after sales service. Its multi-brand, multi-channel business model,
under the aegis of the world renowned Singer brand has been a success story throughout. The
Company has earned many accolades from the business community as one of Bangladesh's best
corporate citizens.

Vision

To be the most admired and respected family company in the country

Mission

to improve the quality of life of people by providing comforts and conveniences at affordable
prices
 8

OBJECTIVES

 To be the market leader in the product range and market segment.

 Provide the consumers with the best service and shopping experience in the country.
 Provide the consumers with products of latest technology.
 Develop the employees to achieve their real potential.
 Provide the shareholders with steady asset growth and return on investment above the
industry norm.
 Grow the revenue and profits at a rate above the industry norm.

Core Values

 Respect each other as individuals and encourage cross functional teamwork while
providing opportunities for career development.
 Provide reasonable return to shareholders while safeguarding their investment.
 Live up to the expectation of a responsible organization by contributing to the
improvement in the quality of life of our customers through outstanding product and
services.
 Develop the suppliers to be partners in progress and share our growth with them.
 Respect the competitors and recognize their contribution to market value.
 Make every effort to ensure that the environment is protected and conserved for future
generations.
 Conduct business by conforming to the ethics of our country and share the social
responsibility of the less fortunate.
 9

Prerequisite of a sound internal control system

Internal control system is a process that is intended to offer rational assurance regarding the
reliability of financial reporting and safeguarding of assets. An effective internal control system
protects an organization in many ways. It minimizes chances of accidental mistakes or planned
fraud that may harm the organization. This is why precautionary controls are designed to
discourage errors or fraud that might occur unintentionally or intentionally.

There are five basic components of a sound internal control system that makes an internal control
system more effective which are described below:

Control environment

The control environment is considered to be the base foundation of an efficient internal control
system. To make the system of internal control more operative the top administrative workers
should make it clear that the workers abide by organizational laws and lives by the ethics and
values with utmost integrity. The fact that no activity that is unethical and goes against the policy
will be tolerated should also be stressed on.

Risk assessment

Risk assessment is the process of calculating hazards or potential risks. After identifying the
probable risks, the task of analysing them and determining how to deal with those so that no one
gets harmed by the action also falls under this course of action.

Control activities

The system that makes sure that the objectives and goals of an organization are met by providing
policies and rules to address and reduce the amount of risk and to decrease the rate of fraud and
mismanagement by stressing on tasks that should be carried out.

Information and communication

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The usage of information and communication to ensure that the internal control system operates
smoothly and effectively is another key aspect of having a sound internal control system. It must
communicate all the information necessary to internal and external stakeholders. This is a
method that is used to train the employees who operate control activities.

Monitoring

This component of internal control environment demands that the system must be monitored by
management to point out any deficiency the organization might have. After determining the
problems, the way to reduce these issues must also be addressed and reported to the top
management employees.
 11

Hierarchy

The Board of Directors at Singer is formed of four directors and one chairman:

Gavin John Walker 

Chairman

Stephen H. Peter James Nayana Jagath Gelmart M.

Goodman O’Donnell  Kumar Dissanayake Gellecanao
Director Director Director Director

The executive committee is as follows:


Gavin John Walker, Chairman
 Mohamed Haniffa Mohamed Fairoz, Chief Executive Officer & Managing Director
 Sajidur Rahman Khan, Chief Operating Officer
 Akram Uddin Ahmed, Chief Financial Officer
 Monzur Murshed Chowdury, Manager-Information Technology
 Mahmud Hasan, Manager-Law & Administration
 Mohammed Anisur Rahman, Head-Information Technology
 Mokbul Ahmed, Director-Manufacturing
 Abrarur Rahman, Manager-Merchandising
 Nayana Jagath Kumar Dissanayake, Director
 Peter James O’Donnell, Director
 Stephen H. Goodman, Director
 Gelmart M. Gellecanao, Director
 Mokbulla Huda Chowdhury, Sales Director
 Abu Zafor Mohammad Kibria, Head-Internal Audit
 Kazi Ashiqur Rahman, Head-Investors Relations Officer
 M. M. Ferdous, Head-Human Resources
 Mohammad Sanaullah, Secretary and Director-Corporate Affairs
 Masud Khan, Independent Director
 Syed Ferhat Anwar, Independent Director
 12

Importance of having a sound Internal Control System

Internal control is the system by which administration structures an organization to give confirmation that
an entity has a solid financial reporting framework, works successfully and productively, and abide by
material laws and directions. It helps the people associated with the organization to understand the state
and objectives of the organization they work in.

Preventing fraud

Establishing internal control also prevent planned fraud or accidental errors that might happen within an
organization. These procedures and policies also help the employees to understand the consequences that
will occur if they do not follow the rules.

Collecting data effectively

It helps the company to collect and organize the data necessary which can increase productivity. It also
helps to find document whenever it’s needed without any hassle.

Establishing protocol

Having a sound internal control system cannot be stressed enough. It makes sure that the employees abide
by the protocol provided by the organization they work for and leaves no room for committing fraud or
any other unethical activities that might occur.

Eliminating errors

Establishing a sound internal control system helps to reduce the number of errors by a significant amount.
It happens because of the proper documentation and segregation of duties that distributes the work and
duties among the employees evenly. This division of labor helps them to achieve their goals easily which
makes their work error-free.

Safeguarding assets

Having a sound system of internal control ensures that the reporting of financial statements are correct
and also helps to overcome any loss of assets that might happen due to fraud or mistakes.
 13

Defining Key Concepts of Internal Control System

Some of the key concepts and core theoretical terms pertaining to internal control system are
provided for better representation of subject matter of this project.

 Internal Control: Internal control, as defined in accounting and auditing, is a process for
assuring achievement of an organization’s objectives in operational effectiveness and
efficiency, reliable financial reporting and compliance with laws, regulations and
policies.
Fraud: when a member of staff dishonestly makes false representation, or wrongfully
fails to disclose information, or abuses a position of trust for personal gain, or causes loss
to others (especially, the employer)
 Factors of Fraud: The first factor is opportunity. When a company doesn’t have a proper
internal control system in place, employers are encouraged to engage in fraud due to the
ample opportunities they find. The second factor is financial pressure. Employees may
commit fraud because of personal financial problems. The third factor is rationalization.
Employees justify their theft by citing reasons such as underpayment. These three factors
together form the fraud triangle.
 Documentation: In the context of internal controls, paper or electronic communication
which supports the completion of the lifecycle of a transaction meets the criteria for
documentation. Anything that provides evidence for a transaction, who has performed
each action pertaining to a transaction, and the authority to perform such activities are all
considered within the realm of documentation for these purposes. Documents provide a
financial record of each event or activity, and therefore ensure the accuracy and
completeness of transactions. 
 Physical Controls: Physical controls relate primarily to the safeguarding of assets. They
enhance the accuracy and reliability of the accounting records.
 Internal Control: Internal control consists of all the related methods and measures
adopted within an organization to safeguard assets, enhance reliability of accounting
 records, increase efficiency of operations, and ensure compliance with laws and 14
regulations.
 Internal Auditors: Company employees who continuously evaluate the effectiveness of
the company’s internal control system.
 Computerized Accounting System: A computerized accounting system is an accounting
information system that processes the financial transactions and events as per Generally
Accepted Accounting Principles (GAAP) to produce reports as per user requirements.
 Voucher: An authorization form prepared for each payment in a voucher system.
 Internal Verification: This is the periodic monitoring and review of data prepared by
employees. It is especially useful in comparing recorded accountability with existing
assets. Discrepancies and exceptions are recorded and reported to management levels to
take necessary corrective actions.
 Pre-auditing: This is an audit approach where payment vouchers (P.V) are reviewed by
audit staff before actual payment is made. The review takes the form of re-computing the
figures on the P.V, checking supporting documents and also checking whether the
necessary authorization or control procedures have been followed before payments are
made.
 Post-auditing: This is an audit approach where supporting documents are reviewed weeks
or months after the transactions have taken place. During post audit the emphasis of the
review is on control weakness and how it can be improved to prevent future breach of
controls
 Reliability of the Accounting System: Accounting information is considered reliable if a
user can depend upon it to be substantially accurate and if it authentically represents the
information that it purports to present.
 15

Evaluation of Singer Bangladesh’s Internal Controls from a

Principles Perspective

Internal control activities follows six principles. To evaluate the effectiveness of Singer
Bangladesh’s internal control systems, we will use these six principles as our judgment criteria.
A detailed description of the six principles of control activities and how they are reflected in the
internal control system of Singer Bangladesh is provided.

Establishment of Responsibility:

Effective control hinges on identifying each organizational member with specific job
responsibility. Such explicitly defined responsibility helps not only to promote efficiency at work
through specialization but also to establish accountability and impose subsequent corrective
measures on members responsible for fraud or error.

At Singer, each and every employee has a well-defined role with clearly stated job
responsibilities. Trainings are held to ensure that the employees know what they have to do and
how to go about doing it. This clear-cut distribution of job responsibility enables management to
hold employees accountable if something goes wrong. In case of an error being detected, a
discrepancy found between accounting records and their corroborating documents or physical
count, management can directly trace the person responsible for that task and investigate the
probable reasons behind the discrepancy. Access to important organizational resources are
limited and strictly controlled and each worker at Singer is closely monitored.

Segregation of Duties:

For internal control system to function smoothly and effectively, it is incumbent that duties be
segregated. The principle of segregation of duties mainly has two dimensions:

 Making more than one employee responsible for a given task without creating
redundancies of job responsibilities
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 Separating record keeping from physical custody of assets

Singer follows both these dimensions. The responsibility of a single task is distributed among
two or more employees. In this case, a single task is divided into many sub-tasks. For instance,
one employee is put in charge of listing expense for inventory purchase, another is in charge of
approving the payment for these expenses after reviewing all supporting documents. The final
approval is given by the signatory after another round of thorough evaluation.

Again, the cashier is in charge of keeping cash in the cash box. At the end of the day, the
manager takes a detailed record of verified transactions to match records on paper and the
balance in the cash box. Apart from this, balance confirmation is done on a daily basis.

In this way, Singer follows the principle of segregation of duties.

Documentation Procedures:

ERP is implemented at Singer. Most transactions take place online or through banks. Cash is
mainly received, not disbursed. Transactions are largely done through cheques and every
transaction is posted in the ERP software. Thus, at Singer, documentation procedure is strictly
followed.

Physical Controls:

Singer ensures that its physical assets are kept safe from theft or damage. Two of the most
prevalent current assets of the company are cash and inventory. Only designated employees
(cashiers) have physical access to the cash box of the company which is kept inside deposit
chambers controlled by an electronic security system. To minimize the risks associated with cash
transactions, the company maximizes its use of banking services and mostly credit transactions
are made. Here too, physical controls are important for handling chequebooks and deposit slips.
Again, designated company personnel handle the cheque writing and clearing process. Only the
signatory is allowed to approve cheques. For inventory, warehouse supervisors are responsible
for physical custody of each of the inventory items. Tight security is ensured in these
warehouses.
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Independent Internal Verification:

The principle of independent internal verification dictates that such verification be done by
employees who are not related to keeping of the accounting records being audited. Generally,
independent internal verification is performed by a team of the organization’s internal auditors.
They periodically or on a surprise basis review the effectiveness of the system of internal control.

At Singer, cash maintainers’ accounts are reviewed by seniors on a daily basis. Periodic cash
verification is done. The internal auditors carry out a quarterly verification of cash and cash
equivalents.

Human Resource Control:

Human resource control activities usually include the following:

 Bonding
 Rotation of employees’ duties
 Thorough background check

Ultimately safety and security depends on the honesty and integrity of organizational human
resource. Even the smartest fraud detecting system can fail to unravel financial irregularity if
company personnel collude and use an even smarter ploy to trick the system and embezzle
company property.

At Singer, every single employee is meticulously monitored and supervised. The access of the
employees are limited and their accountability is extremely high. Singer is focused on creating
morally strong teams of workers. At the time of recruitment, a rigorous background check is
done on every short-listed applicant to verify their qualifications and to avoid hiring those with
previous records of committing fraud. There is provision for strict penalty in case any employee
is found guilty of fraudulent activities.
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Management’s approach to Internal Control System

Internal control consists of all the related measures adopted within an organization to safeguard

assets, enhance the reliability of accounting records, increase efficiency of operations and ensure

compliance with laws and regulations. At Singer, the management understands the need for such

a system. Cash is the one asset which is most susceptible to fraudulent activities. For cash

receipts controls and cash disbursement controls, they follow some rigid principles to ensure

internal control. Some of the key measures undertaken by them are:

1)ERP Implementation: Enterprise resource manufacturing systems are typically used by

manufacturing companies with more than 500 employees and $500 million in sales. This is an

integrated system of various softwares which function as a whole to carry out The related

activities. The ERP system used by singer is IFS. This system goes far beyond the functions of

an entry level general ledger package. They integrate all aspects of an organization including

accounting, sales, human resource management and manufacturing. Singer uses this software to

effectively keep track of all these activities.

2)Online Banking System: Singer receives and pays cash through an online banking

system. All the sales are done on credit and payments are made through checks. This online

system helps to ensure the safe transfer of cash. The management has made online banking

mandatory. So all the employees are bound to do so. As a result, the chances of fraudulent

activities are minimized.

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3)Balance Confirmation: Another approach to the internal control system by singer is the

regular balance confirmation technique. The internal auditors play a very important role in this.

They check the balance and audit the financial statements daily. At the end of each day the

auditors have to examine the financial statements made by the accountants to see whether these

have recorded the transactions correctly or not. And they also verify all the transactions recorded

in these statements by gathering necessary data from the online banking system. By evaluating

these they match the transactions recorded on the financial statements on a regular basis.

4)Cash Management Policy: Another unique approach towards this system which singer

has implemented is the cash management policy. Though all the sales are done on credit and

payments are made through checks, sometimes the company needs to make little amount of

payments. And using check in these is impractical. A common way of handling such payments,

while maintaining satisfactory controls, is to use a petty cash fund to pay small amounts. For this

purpose, every Singer office has a cash box. It contains a specific amount of money. The key of

the cash box remains with the cashier. He only unlocks it and gives cash when such a small

payment is required. And the cashier cannot leave the office without giving the verified

transaction papers to the internal auditors every day.

In Singer, the board of directors and the CEO are trusted with the duty of carefully overseeing

the company’s accounting procedures and providing a strong exemplary ethical leadership. They

ensure the ‘tone at the top’ so that employees at subsequent organizational levels learn from their

leaders and follow a similar path of ethical practices. Consequently, the internal control system

will carry on to adapt to the constraints and specificities of the Group and its subsidiaries, and to

changes in its external environment.

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Recommendations

The internal auditing process of Singer was quite efficient. Especially the presence of a software-
based Accounting and Auditing system leaves very little room for suspicion.

But there were flaws in the process by which Singer gave appliances to customers on credit.
Although they try to take as much details as possible, separate verification of individual
customers would be both impractical and redundant. Moreover, the employees could take
advantage of this weakness to make fake customer profiles and launder out a huge amount of
money from the company in this way.

This can be removed by an integrated verification system connected to the election commission’s
database and the NID database to verify the NID card (National Identity card) number of the
customer to make accurate customer profiles. In this way the customers can be traced back
immediately. This will make payment recoveries easier as well as make it impossible for the
employees to create fake customer profiles.
 21

Conclusion

After reviewing the internal accounting control system of Singer we have come to the conclusion

that their accounting process embodies some of the best industry practices. On multiple fronts

including fraud prevention, enhancement of internal audit, application of electronic accounting

system, Singer did a very good job and continues to build on its strong foundation. The

implementation of important policies has made its internal control system more efficient.

Management’s forward thinking approach to make a truly world class accounting system gives

the company a competitive drive to work on remaining weaknesses and utilize present strengths.

The edge Singer has over other companies operating in our country is the utilization and proper

application of the latest and most advanced accounting information system software and fraud

prevention policies. Besides, their approaches to human resource controls is also amazing. They

have managed to implement various methods properly which suits the company best. The Singer

board has always inspired the company employee to keep pace with latest local, regional and

international accounting standards. We found this proactive ethical drive of top management of

the company to be a decisive factor behind its effective control environment.

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References
 Accounting Principles, 11th Edition, Weygandt, Kimmel, Kieso
 Interview with Mr. Abu Zafor Mohammad Kibria, Head-Internal Audit, Singer
Bangladesh
 http://quotes.wsj.com/BD/XDHA/SINGERBD/company-people

Questionnaire

1. Can you give a brief idea about the organization’s mission and vision?

2. Does this organization have a specific hierarchy? Can you give us a portrait or ideas
of it?

3. How often is this organization dealt with fraud?

4. What are some of the frauds you have observed in the past in your organization so
far?

5. Can you please describe some of the internal control methods that you have taken in
order to deal with deal with such problems?

6. Controlling Cash Receipts and Cash disbursement is becoming a hard problem to

solve for most Organization. What are the steps taken by your organization to tackle
such issues?

7. How do you divide tasks among employees to avoid any unfair advantage that may
arise when one person is responsible for related tasks?

8. Can you please provide information about the physical controls currently available in
your organization?
9. What are some of the problems you have faced while carrying out the internal control
methods?

10. What are some of the control methods that you plan to initiate in your organization in
the future?