CP 27-1 Ethics and professional conduct in business In August, Lannister Company
ID: 2574793 • Letter: C
Question
CP 27-1 Ethics and professional conduct in business In August, Lannister Company introduced a new performance measurement system in manufacturing operations. One of the new performance measures was lead time. The lead time was determined by tagging a random sample of items with a log sheet throughout the month This log sheet recorded the time that the item started and the time that it ended production, as well as all steps in between. The controller collected the log sheets and calculated the average lead time of the tagged products. This number was reported to central management and was used to evaluate the performance of the plant manager. The plant was under extreme pressure to reduce lead time because of poor lead time results reported in September The following memo was intercepted by the controller Date: To: From: October 1 Hourly Employees Plant Manager During last month, you noticed that some of the products were tagged with a log sheet. This sheet records the time that a product enters production and the time that it leaves production. The difference between these two times is termed the "lead time." Our plant is evaluated on improving lead time. From now on, I ask all of you to keep an eye out for the tagged items. When you receive a tagged item, it is to receive special attention. Work on that item first, and then immediately move it to the next operation Under no circumstances should tagged items wait on any other work that you have. Naturally, report accurate information. I insist that you record the correct times on the log sheet as the product goes through your operations How should the controller respond to this discovery?Explanation / Answer
Answer: From the above it appears that the Controller has identified certain items on sample basis and analused the lead time for those. It is understood that the the lead time is one of the key performance indicator to evaluate the performance of the Plant Manger. The Plant Manger will be under the extreme pressure to improve the lead time so his performace is not dowgraded.
The Plant Manager has issued the said memo to the hourly employeed highlighting that their plant is being evaluated on improved lead time and has shared the list of tagged items being evaluated. The memo states that these items should be given special attention while recording the time in timesheet. The plant is under the extreme pressure to reduce the lead time.
This could be regarded as a collusion between the Plant Manger and the Hourly employees as the employees might record the incorrect time for the tagged products to ensure the good performance of the Plant and thereby the Plant Manger.
Ideally no such memo should have been issued without the notice of the controller.
Now since, the controller has discovered this memo, he should do the following:
a) he should evaluate the performance of this Plant namager by doing a surprise check on the lead time of the non-tagged items
b) Shoul put a control "Segregation of duties" at the plant, so the person recording the time in the worksheet should be different from the actual workers.Segregation of duties ensures their is a oversight and review to catch errors and it prevents fraud as it requires to independent people to collude to commit a fraud.
The controller may put an employee from another plant and make him responsible for performing a function independently or the controller may explore the possibility to use technology to record the time so to avoid any human intervention.
The Plant Manger should be given a warning to not issue any such memo with the knowledge of the controller in future.
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