PART B (24 marks)

Assume you are the management accountant for the Foleo Group. Tracey Chen has asked you to assist her in assessing the organisation’s internal control environment before her meeting with Peter Singh next week. Specifically, she asks you to look at the Head Office Information Technology (I.T.) Department. Tracey provides you with her detailed observations of the Department’s current control environments below and asks for your input.

Information Technology Department:

The responsibility for information security is the responsibility of the I.T. Department, so essentially, the buck stops with them!! They define the levels of access each employee has to the information generated by the Foleo Group, and it would seem that they have been less than diligent in this area of responsibility. They also design and maintain how the data is processed and reported. From my time with the Finance Department, it is apparent that the controls built into the various data collection, processing and reporting systems are completely ineffectual.

When I asked one of the more junior operational staff to show me the servers that keep Foleo running, she simply grabbed a keyboard and handed it to me, saying “Just type in what you want to look at”. While I am unsure whether my senior position in the organisation influenced this unrestricted access to the servers, or whether this is the usual level of access granted to all employees (or non-employees, for that matter), I have referred this matter to the I.T. Business Unit Manager for his immediate attention.

In my discussions with the I.T. Manager, I asked about the now-evident and widespread practice across the organisation of password sharing. He acknowledged that this was problematic but that resolving a behavioural issue such as this was beyond the scope of his expertise and responsibilities. I also asked about what plans were in place if there was a system failure or if some other unexpected disruption to operations were to occur. His response was that they backed up the servers on a monthly basis, so they could restore the system to the latest back-up tape. He was reasonably confident that this would be an adequate solution, but I’m not so sure.

Required:

Based on Tracey’s observations, identify three (3) lapses in the I.T. Department’s control environment and explain the risks associated with each lapse. Suggest a specific control that the I.T. Manager could implement to address each lapse. For each control, classify it as either preventive or detective in nature, and classify it as one of the four Simons’ levers of control. Justify your classification choices.

PART C (26 marks)

Assume you are the newly appointed internal auditor for the Foleo Group. Tracey Chen has asked you to assist her and Peter Singh in assessing the organisation’s staff motivation levels and incentive programs currently in place for the Foleo Skills business unit. As a result of your investigations, you have uncovered a number of concerning issues relating to the program development, training delivery and sales areas of Foleo Skills. At your first monthly meeting with Tracey and Peter, you present your findings in the form of the report below:

Foleo Skills:

In addition to discussing the incentive schemes that are currently in place for her business unit, Elise Burton also identified some underlying issues that I believe are directly related to the poor levels of staff motivation at Foleo Skills. Elise notes that in recent years, absenteeism has been steadily increasing, as has staff turnover in both the sales and training program development areas. Furthermore, Elise advises that she is having problems retaining the trainers themselves, as they are looking outside Foleo for the advancement of their careers. The introduction of the new Balanced Scorecard has attempted to address this motivational issue by redefining how employees’ performance is measured, however, at this stage, Foleo Skills continues to be plagued by poor levels of job satisfaction and motivation. We need to address these problems in order to boost the employees’ commitment to Foleo and in order to achieve this, we must demonstrate our commitment to them. To that end, Elise and I have documented the array of incentive programs in place across Foleo Skills, which I present below:

The Training Program Developers (TPDs):

The TPDs are paid bonuses on the basis of budgeted costs and cycle time performance measures. Specifically, they are paid a bonus when they have come in under budget for the time and costs consumed to produce a new training program. This has been problematic in the past, when the sales staff were selling non-Foleo-related training

Assessment Requirements – Overview

The ACCG3001 S1 2025 Case Analysis required students to apply lecture concepts (Weeks 7–12) to the Foleo Group case study, across four main parts:

• Part A (24 marks) – Performance measurement through ROI, Residual Income (RI), and Economic Value Added (EVA). Students were to calculate financial ratios, compare results across periods, and prepare a management report for Tracey Chen.

• Part B (24 marks) – Evaluation of the internal control environment in the IT Department. Students needed to identify control lapses, analyze risks, recommend corrective controls, and classify them using Simons’ levers of control.

• Part C (26 marks) – Review of staff motivation and incentive programs at Foleo Skills. Students were required to assess current issues, analyze the impact of incentive schemes, and provide recommendations for improving job satisfaction and retention.

• Part D (26 marks) – [Not fully provided in the brief, but intended to expand on further case analysis based on lecture content from Week 12].

The assessment emphasized applied problem-solving by combining calculations, report writing, critical analysis of controls, and organizational behavior insights.

Mentorship Process – Step by Step Guidance

Step 1 – Understanding Part A: Performance Measurement and ROI

• The mentor guided the student to extract relevant financial data from the Foleo Fones comparison report and balance sheet.

• The ROI was calculated using profit controllable by Foleo Fones and invested capital (total assets – current liabilities).

• After working through ROI, the student was encouraged to write a short report explaining why ROI declined despite bonus payments being made, linking it back to profitability and capital structure.

• Next, the mentor walked the student through Residual Income (RI) and EVA to provide alternative performance measures, highlighting how they might offer a more accurate reflection than ROI.

Learning Outcome: Application of performance measurement techniques, comparison of ROI, RI, and EVA, and critical evaluation of financial results.

Step 2 – Tackling Part B: Internal Control Environment

• The mentor encouraged the student to identify three major control weaknesses from Tracey’s observations (unrestricted server access, password sharing, weak backup strategy).

• For each lapse, the student was guided to:

  • Explain the risk (e.g., data breaches, unauthorized access, system failure).

  • Recommend specific controls (e.g., role-based access, two-factor authentication, daily backups).

  • Classify the control as preventive or detective and align with Simons’ levers of control.

• The mentor emphasized the importance of clear justifications rather than listing solutions.

Learning Outcome: Ability to evaluate IT control environments, understand risks, and apply management control frameworks.

Step 3 – Addressing Part C: Staff Motivation and Incentives

• The mentor asked the student to summarize the issues affecting Foleo Skills (high turnover, absenteeism, lack of career growth, flawed incentive schemes).

• Using motivation theories (Herzberg, Maslow, Balanced Scorecard perspectives), the student analyzed how the current bonus structure encouraged cost-cutting over quality.

• The mentor guided the student in recommending revised incentive programs focusing on long-term commitment, professional development, and aligning bonuses with both financial and non-financial performance.

Learning Outcome: Integration of organizational behavior with management accounting, critical thinking about motivation and incentive alignment.

Step 4 – Structuring and Presenting the Work

• The mentor stressed clarity and professional formatting: calculations followed by explanations, concise management-style reports, and headings for each part.

• The student was reminded to link every answer back to Tracey Chen’s concerns, showing practical relevance.

Learning Outcome: Academic communication skills — balancing technical detail with professional business reporting.

Final Outcome and Learning Objectives Achieved

By following the mentor’s structured guidance, the student produced a comprehensive case analysis that:

• Demonstrated strong quantitative analysis through ROI, RI, and EVA calculations.

• Showed ability to critically evaluate an internal control environment and propose practical improvements.

• Applied motivation theories to a real-world business scenario, offering strategic HR and incentive solutions.

• Improved professional reporting and communication skills by preparing concise, business-focused responses.

Overall Learning Objectives Covered:

• Application of management accounting tools in performance evaluation
• Understanding and improving internal control systems
• Critical thinking about motivation, incentives, and organizational behavior
• Professional business communication and structured reporting