FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting

DEPARTMENT Department of Accountancy
MODULE NAME Governance and Control 2A
MODULE CODE GAC02A2/GAC02B2/GAC2B01

ASSESSMENT DATE June/July final exam

ASSESSOR(S) Mrs Stephanie Venter
Mrs Pranisha Rama
MODERATOR(S) Ms Belinda Schutte
DURATION: 140 minutes
Reading time 20 minutes Writing time 120 minutes
TOTAL MARKS 100 marks
NUMBER OF PAGES OF QUESTION PAPER
7
(including cover page)

INFORMATION/INSTRUCTIONS:
_________________________________________________________________________
1. During the reading time you may make notes on your question paper but may not write
in your answer booklet.
3. Delete all (even single open lines) open spaces on your answer sheets with pen. Pages
on your answer sheets that contain open spaces will be marked as such and those pages
will not be eligible for a remark.
4. No tippex or pencil may be used on your answer sheets. Pages on your answer sheets
that contain pencil or tippex will be marked as such and will not be eligible for a remark.
5. All the examination regulations of UJ and the policy document for students of the
Department of Accounting will apply during this assessment.
6. Keep this paper for your record purposes.
7. The neatness, disclosure and presentation of your answers will be taken into account
when marking your paper.
8. Answer all the questions.
_________________________________________________________________________
QUESTION 1 57 MARKS

GNR Ltd is a pharmaceutical company that manufactures a variety of drugs. The company
recently expanded its operations and has now included four more manufacturing plants.
During the year a number of special resolutions needed to be passed with all of the changes
within the operations. Additionally there were a number of board meetings taking place in order
to keep the board updated with all the changes.

Recently GNR’s main manufacturing plant caught on fire, a number of the IT systems are kept
within this plant, management are extremely concerned that there were limited backups of
information. Business continuity was a huge concern after this incident, and management are
now looking for ways in which they can improve their business continuity should something
like this happen again. Management are looking at a full spectrum of controls that can be
implemented over business continuity.

The financial manager, Erich, received the following emailed from the CFO (Chief Financial
Officer):

Dear Erich,

Hope you are doing well.

Thank you for sending the first draft of the financial statements to me. I however have a
number of concerns, the numbers just do not make sense, and I require further clarity.

For example:
Total sales per the invoices= R120 000
Journal entries relating to this= R110 000
Sales per the income statement= R109 000

Can you see something just does not make sense? This is just one example, I have a
number of concerns over other accounts.

Can you urgently look into this issue?

Additionally as we prepare for the yearend audit, please can I ask that you get the financial
statements ready and any other information that may be required to complete the audit.
I have signed the engagement letter, and the auditors have completed pre engagement
activities.

Looking forward to your response.

Regards,
CFO
We recently received the following information with regards to the inventory management
process, with the new manufacturing facilities, the new staff need to understand how the
inventory cycle works. This will form part of their onboarding training.

Meetings:

At the recent shareholders meeting a special resolution was passed to purchase additional
equipment required for the factory. The total cost of the item was R250 million rands and was
the most significant special resolution passed for the year. Other special resolution meeting
details can be obtained from the company secretary.

The following board meetings had taken place during the year:

Date
11 January 2022
23 April 2022
15 August 2022
18 November 2022
QUESTION 2 40 MARKS

Reference article : Decision on G4S contract to be announced this week — Lamola

(timeslive.co.za)

G-Force Ltd (Hereafter, G-Force) is a leading global integrated security company that
specialise in outsourcing facilities and business operations in industries where concerns to
security and safety are viewed as a strategic threat. G-Force is well-represented in each of
South Africa's nine provinces, the company is one of the biggest private sector employers in
the nation, employing 15,000 carefully screened, thoroughly vetted for security, and highly
skilled individuals.

Background Information

The South African Department of Correctional Services signed a 25-year contract with G-
Force in 2005 for management of security risk in the Free State prison. The facility can
accommodate around 3000 inmates, G-Force makes use of external suppliers in order to cater
for the inmates. G-Force operates on two income streams, namely, 25-year contract and
donations (for rehabilitation programs).

Recently, G-force has been implicated in several corruption scandals and this was due to a
lack of quality internal control measures. The board of directors have appointed you manager
of the company, your high level of experience regarding internal controls qualifies you as the
perfect candidate for the position. As part of your duties, you are required to assist managers
from different departments with various internal control matters faced by G-Force. Managers
of various departments stated that the company previously made use of a single individual for
procurement, payment processing, and recording of transactions. The staff further stated that
they are not comfortable with deviating from this practice because it was convenient. G-Force
has a financial year end of 31 December 2023.

Leaked e-Mail scandal.

During 2022, the previous manager of the G-Force Mr. Sebeko was involved in a huge
corruption scandal which made global headlines. It was alleged that Mr. Sebeko and other
upper management officials were conspiring to assist one of its inmates to escape for a fee.
An anonymous hacker managed to access the emails of the upper-level officials and expose
them to the public.

Refer to the email below:

To: Operations@G-Force.co.za

From: Sebeko@G-Force.co.za

Subject: Big time opportunity

Good day, I hope you are well.

I have recently received an offer from an anonymous source. This offer can set us up for early
retirement. Please promise me that you will keep this between us, no one else can know about
this unless we happen to need their assistance. There is an inmate offering a lot of money for
assistance in escaping, I am really considering taking this offer. My conscious tells me it’s
wrong, but I have bills to pay, I’m sure if you are in the same boat.

Meet me at the cafeteria to discuss this during lunch today, make sure you come alone.

Kind Regards

Mr. Sebeko

Composition of the Board.

G-Force has intentions of getting listed with the JSE, the company claims to be compliant with
King IV.

Name & Surname Gender Race Role

1 James Radebe Male African Chairman-
Executive Director
2 Zikani Masinga Male African Executive Director
3 Moses Makhale Male African Executive Director
4 Thabo Baloyi Male African Independent Non-Executive
Director
5 Gary Van Wyk Male White Independent Non-
Executive Director
6 Thato Masemola Female African Executive Director

The governing body of G-force reassured stakeholders that despite the conspiracy event and
the negative press, the company is still operating at its maximum potential. The governing
body made the erroneous assumption that everything will "Blow over" in due course and that
no risk management plan is necessary to guard against future reputational damage.
Furthermore, the governing body does not see the value in integrated reporting because all
company issues are discussed with stakeholders during meetings. The G-force accountant
places more emphasis on "material" transactions than on recording all the company's
transactions, this has led to “minor” transactions not being recorded. As a result of this, the
financial statements are not considered as complete.

International Suppliers.

As a leading global integrated security company, G-Force is committed to keep its network of
international suppliers. The supplies consist of canned food, uniforms, and other security
products required to manage the facility. The company doesn’t make use of locally produced
goods, rather the international relationships they have established over the years. The war in
Ukraine has led to a drastic increase fuel price, G-force remains positive that uncertainty
regarding international trade will soon be resolved. Due to the war, the importing of goods by
G-force can be a challenging process for the company due to orders arriving late or not arriving
at all, this is an inherent risk of importing goods.

Contract acquisition.

Although G-force signed a 25-year contract with the department of correctional services, the
contract is up for a performance review every 3 years. The criteria for G-Force keeping their
contract with the department is based on the company meeting the objectives of managing
the prison, the escape scandal is clearly an indication that objectives are not being met.

Rehabilitation program.

The rehabilitation program is mainly focused on creating programs that teach inmates skills
that they can use when they reconnect with society. There are various skills that this program
offers, this includes, woodworking, sewing, baking and electric wiring. The program depends
solely on donations from the public. However, the public is sceptical about contributing to the
program due to the lasted scandal relating to corruption. As a part of the rehabilitation
program, inmates are employed as prison chefs to attain catering skills. However, the
governing body doesn’t promote health and safety protocols for this program to save costs.

QUESTION 1= 57 MARKS

QUESTION 2= 40 MARKS

P&I MARKS= 3 MARKS

TOTAL= 100 MARKS