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Question: Scenario You have a client called VGS Retail plc that offers a wide range of foods and clothing in each of its high street stores. The company has 52 stores located around the country and has also started to trade online in the last 12 months. The company’s share price, and customer and investor confidence in the company, has been falling gradually over the last few months, as customers, investors, regulators and the financial markets have been aware of some issues regarding internal controls within VGS Retail plc. Your line manager has given you an overview of the current situation of the client, VGS Retail plc. She wants to see how you are progressing and check your understanding of the situation. Internal controls relating to stock/inventory control, security, IT and website systems, and client data each require improvement. There have been several reports that customer files have been hacked. Internal audit reports have shown that details of some customers have been mixed up. This has resulted in marketing materials being sent to the wrong people so that personal addresses have been shared. Staff in several stores have been using their staff discount to buy goods at lower prices. They have then sold these goods by asking relatives to sell them online at full prices. Evidence of this practice has been revealed through the social media posts of staff. Internal auditors have reported that there is a lot of evidence of stock theft of clothing and foodstuffs. An increasing amount of wastage has occurred as food has been thrown away having not been sold before its sell-by date. Fashion lines within the clothing division have not been sold because designs have been too traditional and were considered by many customers to be out of date. There has also been a growing number of returns because of poor quality clothes that have been sourced from cheap overseas suppliers. These clothes have been sold at high prices and are not considered to be value for money. It is important that communication with customers promotes the new online sales facilities. The website information only includes a fraction of the goods that are intended to be sold online, so sales of many items have been delayed because of these omissions. Access to the online sales site is complicated and time-consuming and many customers have given up trying to buy online, choosing to buy their goods elsewhere. Produce a formal written technical report for your line manager that: • considers how the issues in the scenario may impact the company • gives recommendations, including further internal controls, that will enhance customer and investor confidence in the company • justifies your recommendations.
[Your Name] [Your Title] [Date] [Line Manager's Name] [Line Manager's Title] Subject: Technical Report on VGS Retail plc's Internal Controls Dear [Line Manager's Name], I am hereby presenting a formal technical report on issues affecting VGS Retail plc, analyzing their potential impact on the company and providing recommendations for internal controls and measures to enhance customer and investor confidence. 1. Impact of the Issues on VGS Retail plc The observed issues, including weak internal controls in inventory, security, IT, and client data management can potentially harm the company's reputation, financial performance, and competitive position in the following ways: A. Loss of customer trust: Frequent instances of customer data breaches, poor quality merchandise, delayed online sales, and stock theft may cause existing customers to lose faith in VGS Retail plc and lead to a loss of business. B. Erosion of investor confidence: The falling share price and poor management of store operations may prevent investors from supporting the company's growth initiatives. C. Regulatory scrutiny: The inadequate data protection mechanisms and failure to protect customer data may lead to interventions by regulators, causing penalties or requiring costly measures to rectify the situation. D. Damaged brand reputation: The proliferation of quality and security issues in VGS Retail plc operations can tarnish the company's image, deterring potential customers and partners from engaging with the brand. 2. Recommendations to Enhance Customer and Investor Confidence Based on my analysis, I propose the following measures to strengthen internal controls and build customer and investor confidence: A. Strengthen inventory control and security measures: Implement advanced inventory management and security systems to reduce incidents of theft, wastage, and unauthorized staff purchases. B. Revamp the product quality control system: Improve supply chain management, source better-quality products, and employ rigorous quality control checks to ensure that the merchandise meets customer expectations. C. Streamline online sales operations: Overhaul the company website to include a wider range of products, simplify the online sales process, and enhance the user experience to encourage more customers to shop online. D. Enhance data protection measures: Implement stronger cybersecurity measures to protect customer data and prevent unauthorized access to confidential information. E. Establish a whistleblower policy: Encourage employees to report potential misconduct, fraud, or insider abuse by introducing an anonymous whistleblower program and communicate it effectively to everyone in the organization. F. Introduce regular internal audits and performance reviews: Conduct periodic audits of internal controls and processes to identify areas of improvement and ensure compliance with established standards. G. Engage in proactive communication: Communicate transparently with customers and investors about the steps being undertaken to address and rectify the issues, to regain their trust and confidence. 3. Justification for the Recommendations Implementing the proposed measures will significantly improve VGS Retail plc's internal control environment and mitigate risks associated with inventory theft, unauthorized discounts, data breaches, and product quality issues. This will not only help restore customer trust and investor confidence but also enable the company to maintain a strong brand reputation, ensuring sustainable growth. Moreover, these recommendations are aligned with best practices and industry standards in retail, making it vital for VGS Retail plc to adapt and stay competitive in today's digital economy. Please let me know if you have any comments, questions or need further clarification on any part of this report. I am confident that by implementing these recommendations, VGS Retail plc will significantly improve its operations and safeguard its reputation. Sincerely, [Your Name] [Your Title]
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