Simply Steam Case

Overall Evaluation of the Control Environment

Simply Steam

Overall Evaluation of the Control Environment

In making an overall evaluation of the control environment at Simply steam, there are seven factors to the control environment that I will assess. I will look at the strengths and weakness of the following:

1. Integrity and ethical values
2. Board of directors
3. Managements philosophy and operating style
4. Organizational structure
5. Financial reporting competencies
6. Authority and responsibility
7. Human resources

These seven factors of the control environment are very important in evaluating the effectiveness of the overall control environment in an organization.

Integrity and Ethical Values

Doug, Phil and Mr. Day, the owners and managers at Simply Steam appear to have a commitment to integrity and ethical values. It shows that they seek to promote honesty and integrity amongst their employees and it is apparent such values exist within the organization.

It wasn’t mentioned what controls they have in place to monitor the adherence to ethical values or what happens if an employee deviates from this commitment. It appears they have fallen short on having processes in place to monitor adherence to these values but I believe that is a lack of understanding of how important it is as opposed to them trying to be devious. A concern I would have is that the salespeople are paid on a commission basis along with Mr. Day (on top of his salary). This could give them incentive to commit fraud.

 In the evaluation when having a conversation with Doug about the audit he stated that he had no concerns about the audit, there were no reported frauds to date and that he was proud of his company. This leads me to believe he has the company’s best interest at heart.

Board of Directors

Simply Steam has a board of directors that consists of Doug, Phil and their wives. While there are pros to having the owners/management of the company on the board of directors, there are also cons.

It is good to have Phil and Doug on the board because they understand the workings of their company and day to day business. They are interested in the longevity of their company and have incentive to see it do well. On the other hand, they should have someone who is independent of management on the board because they have incentive and opportunity to commit fraud if they wanted to. They understand the overrides to manipulate whatever statements they need to make their company look good. Another problem is that the meetings are only scheduled for once a year. They should consider having monthly or at least quarterly meetings.