Decision Making at a Baked Goods Factory

Decision-Making at a Baked Goods Factory

Nurlan Akhmetov has graduated from Bachelor of Business Administration program with major in accounting in 2003. Soon after graduation, he joined an auditing company located in Almaty, Kazakhstan. When he participated in an audit of manufacturing companies, he could see how products are created. Nurlan became interested in how manufacturing companies operate. He realized that it would be much more interesting for him to work in a manufacturing company. He wanted to become a direct participant of consumer products manufacturing.

In 2008, Nurlan entered Master of Business Administration program with major in management. He thought that new knowledge he will obtain will increase his chances to get a good position in a manufacturing company. While studying at MBA, Nurlan continued to work at the audit company. When he graduated with MBA degree, he submitted his CV to a recruiting agency.

Soon after, he was invited for an interview to a baked goods factory. Based on his education and work experience, Nurlan was offered a position in a Department of Internal Audit. Nurlan gave this offering a good deal of thought and agreed. He realized that whereas external auditors are primarily interested in the audit of financial statements, internal auditors need to appraise overall operations. External auditors are independent contractors who serve third parties to satisfy their needs in reliable financial information, while internal auditors are a company’s employees who serve the needs of the company and are directly concerned with the prevention of fraud in any form or extent in any activity reviewed. Nurlan decided that the position in the Department of Internal Audit will give him an opportunity to become an integral part of consumer products creation.

Immediately after Nurlan started to work, he was told that the activity of the factory is governed by the Internal Policy of the Factory – a document that is developed congruently by all departments and approved by top management. While studying this document, Nurlan noticed that the main priority of the factory was baking goods from ecologically clean ingredients.

Nurlan’s first task was to review factory’s representative expenses for the last month. Before Nurlan started a review, he re-read a chapter of Internal Policy of the Factory on representative expenses. He noticed that the policy allowed conducting negotiations with potential suppliers and buyers in restaurants, including the most expensive ones. In particular, it allowed ordering any dishes and drinks, except alcoholic drinks.

While conducting the review of documents related to the meeting with a potential supplier of flour, Nurlan noticed that strong alcoholic drinks were ordered. He decided to understand why one item of the Internal Policy of the Factory was violated. Since the documents revealed that managers from Procurement Department took part in the negotiations, Nurlan decided to address to the Head of Procurement Department, who explained that drinking of alcohol allowed learning more useful information not only about the quality of flour, but also about the region where wheat for it was grown. It

turned out that wheat, from which flour is produced, is grown not in a very ecological region. Therefore, the Head of Procurement Department considers that the information obtained as a result of drinking alcohol was more important than committed violation of Internal Policy of the Factory. Although Nurlan agreed that benefit from obtained information exceeded harm from violation of internal policy, he disclosed this violation in his report on representative expenses review.

Nurlan’s next task was related to the audit of a manufacturing process. He had to review reports on bakery dough usage for each baked good. The reports are formed by dough doser automatically and should be printed out by employees of the manufacturing department at the end of each shift. Among bound and numbered reports for the last week, Nurlan found a hand-written report. Besides being hand-written, but not printed out automatically by the doser, the report disclosed only total quantity of bakery dough that was used for baking of all goods by the shift, but not the detailed report on quantity of bakery dough that was used for each baked good. When Nurlan asked the Head of Manufacturing Department for explanations, he was told that the dough doser broke down that day. The head of the shift made a decision not to terminate production process, but instead to spoon dough into baking cups manually. He decided that baking and delivery of goods to grocery stores in full quantity and on time was more important than possible errors in dough dosages. Although Nurlan considered this decision to be also correct (because it allowed not letting customers down), he nevertheless disclosed this violation in his report.

Nurlan’s third task was to conduct an unexpected audit of factory’s cash funds. For this purpose, a special order was issued by top management. The audit revealed lack of money in the amount of five thousand tenge. The cashier explained that today he had to pay salaries to factory’s employees and he had to go to the bank to take money for this purpose. The factory did not provide the cashier with a car and he had to go to a bank by his own car. Since there was not enough fuel in a fuel tank, the cashier had to go to a fuel-filling station first and then to a bank. But the cashier did not have any personal cash and therefore he took money from factory’s cash funds

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