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1. It improves the bottom line by reducing process cost and improving productivity and mission effectiveness.

2. A performance measurement system such as the Balanced Scorecard allows an organization to align its strategic activities to the strategic plan. It permits -- often for the first time -- real deployment and implementation of the strategy on a continuous basis. With it, an organization can get feedback needed to guide the planning efforts. Without it, an agency is 'flying blind'.

3. Measurement of process efficiency provides a rational basis for selecting what business process improvements to make first.

4. It allows managers to identify best practices in an organization and expand their usage elsewhere.

5. The visibility provided by a measurement system supports better and faster budget decisions and control of processes in the organization. This means it can reduce risk.

6. Visibility provides accountability and incentives based on real data, not anecdotes and subjective judgements. This serves for reinforcement and the motivation that comes from competition.

7. It permits benchmarking of process performance against outside organizations.

8. Collection of process cost data for many past projects allows us to learn how to estimate costs more accurately for future projects.


Why measure performance ?

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.


It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.  While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century.

What is Balance Scorecard ?

In light of strategic management approaches, a scan of the internal and external environment of the business is an important element if strategic planning. Environmental factors internal to a business unit can be classified as strengths (S) or weaknesses (W), and those factors external to the business can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.


The SWOT analysis provides information that is helpful in matching the business’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.


Strategies are developed by taking into account the SWOT profile or SWOT matrix constructed as below:





What is SWOT matrix/analysis ?

You can reduce employee fraud by controlling tempting environments and implementing internal control processes to deter wrongdoing. It is also just as important to identify factors that lead to the act of fraud.


Factors leading to fraud:

· Motive

How to guard against Internal Frauds committed by employees ?

Financial Statements would be largely uninformative without ratios to all but the very skilled. Financial Statements with ratio can be interpreted and usefully applied to satisfy the needs of the readers. There are a vast number of parties interested in analyzing Financial Statements.


There is not, therefore, any definitive, all-encompassing list of points for analysis that would be useful to all these stakeholders groups.


Ratio analysis is a first step in assessing an entity. It removes some of the mystique surrounding the financial statements and makes it easier to pinpoint items which it would be interesting to investigate further.


Ratios need very careful handling. They are extremely useful if used properly, and very misleading otherwise.


Listed below are some of the categories of ratios and indicate some of the stakeholder groups that would be interested in them.

What are accounting ratios?


This is shown in 2 headings of Fixed Asset and Current Assets


· Fixed Assets

What should a Balance Sheet contain ?

A scan of the external macro-environment in which the business operates in can be expressed in terms of the following factors:

· Political



Formal and informal rules under which the business must operate

(eg. Tax policy, employment laws, environmental regulations, trade restrictions and tariffs, political stability)

Profitability ratios


Return on capital employed (ROCE)


This is one of the most important profitability ratios, as it encompasses all the other ratios, and adequate return on capital employed is why people invested their money in a business in the first place. This ratio tells us what is important is not simply how much profit has been made but how well the capital has been employed.


Capital employed is normally measured as fixed assets plus current assets less current liabilities and represents the long–term investment in the business, or owners’ capital plus long–term liabilities. Return on capital employed is frequently regarded as the best measure of profitability.


We use the average of capital account as the figure for capital employed, i.e. (opening balance + closing balance) / 2.








What are Profitability ratios?

 Debtors ratio


This is computed by dividing the debtors by the average daily sales to determine the number of days sales held in debtors.

What are Efficiency ratios?

· S-O strategies pursue opportunities that are a good fit of the business’s strengths

· W-O strategies overcome weaknesses to pursue opportunities

· S-T strategies identify ways that the firm can use its strengths to reduce its vulnerabilities to external threats

· W-T strategies establish a defensive plan to prevent the business’s weaknesses from making it highly susceptible to external threats

The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in  a SWOT analysis.

Note that the profit before interest is used, because the loan capital rewarded by that interest is included in capital employed.


A low return on capital employed (assets used) is caused by either a low profit margin or a low asset turnover or both. This can be seen by breaking down the primary ROCE ratio into its two components: profit margin and asset turnover.

A low margin indicates low selling prices or high costs or both.


Asset turnover


This will show how fully a company is utilising its assets.

Profit margin (on sales)

A low turnover shows that a company is not generating a sufficient volume of business for the size of the asset base. This may be remedied by increasing sales or by disposing of some of the assets or both.


Gross Profit Margin

The gross profit margin focuses on the trading account. A low margin could indicate selling prices too low or cost of sales too high.


Return on owners’ equity

This looks at the return earned for ordinary shareholders. We use the profit after preference dividends and interest (ie, the amounts that have to be paid before ordinary shareholders can be rewarded).

A long average collection period probably indicates poor credit control.


Creditors ratio


This is computed by dividing the creditors by the average daily credit purchases to determine the number of days purchases held in creditors.

Stock turnover


This ratio indicates whether stock levels are justified in relation to sales. The higher the ratio, the healthier the cash flow position.

Which are bought primarily not to be resold immediately.

Which are bought to be used in the business.

Which are to be used in the business for a long time.

Fixed Assets are listed first in the Balance Sheet with those which the business will keep the longest, down to those which will not be kept that long.


Examples: Land and Building, Fixtures and Fittings, Machinery and Motor Vehicles

· Economic

Factors affecting the purchasing power of potential customers

(eg. economic growth, interest rest, exchange rates, inflation rate)

· Social

Demographic and cultural aspects of the external macroenvironment which affect customer needs and the size of potential markets

(eg. health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety)

· Technological

Factors that can lower barriers to entry, reduce minimum efficient production levels and influence outsourcing   decisions. (eg. R&D activity, automation, technology incentives, rate of technological change)

The  acronym PEST (or sometimes rearranged as “STEP”) is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

What is PEST analysis ?

The employee has some pressing financial need (family emergencies, excessive debt, gambling problem etc.)

The employee has the skills that qualify him or her for a job working with cash or other employer assets.

The employer’s lack of internal controls or enforcement or misplaced trust; creating a conducive environment for fraud.

The employee is convinced that the employer owes him or her something such as a higher pay or more appreciation, thus justifying the act of committing the fraud.

Types of occupational fraud:

· Misappropriation of cash

· Cheque tampering

· Revenue skimming

· Fraudulent disbursements (fake invoicing)

· Payroll schemes

· Billing scams

· Misappropriation of  Non-cash assets

· Inventory theft

· False purchases

· False Sales

· Means

· Opportunity

· Rationalization

used to compare the profitability of one company with another or of one company over time.


Examples of interested groups: Shareholders, Management, Employees, Creditors, Competitors, Potential Investors

used to compare the liquidity of one company with another or of one company over time.


Examples of interested groups: Shareholders, Suppliers, Creditors, Competitors

used to compare company efficiency with others or with itself from one year to another.


Examples of interested groups: Shareholders, Potential Purchasers, Competitors

used to compare company efficiency with others or with itself from one year to another.

There are some ratios which belong in more than one category.

Accounting ratios are only useful when used to compare:


- One company's results over a period of time.

- One company's results with another company. It is best to compare with the best, such as a world class

   company, or to compare with the industry standard for that type of business.

 - The company's results with those expected. It is useful to use budgets for this purpose.

· Profitability ratios

· Liquidity ratios

· Efficiency ratios

· Investment ratios

· Capital Structure

used by potential investors when making investment decisions.


Examples of interested groups: Shareholders, Lenders, Creditors, Potential Investors

· Shareholders

used by potential investors when making investment decisions.


Examples of interested groups: Shareholders, Potential Investors

Which are likely to change in the short term and certainly within 12 months of the balance sheet date.

Current Assets include items for resale for profit, amounts owed by debtors, cash in the bank and cash in hand. They are listed in increasing order of liquidity. Starting with assets furthest away from being turned into cash and finishing with cash itself.


Examples: Stock, Debtors, Cash at Bank and Cash in Hand.

This is shown in 2 headings of Current Liabilities and Long –Term Liabilities

These items are that has to be paid within a year of the balance sheet date.


Examples: Bank Overdraft and amount due to creditors for the purchase of goods and services.

These items are that has to be paid more than one year after the balance sheet date


Examples:  Bank Loans and Loans from other businesses.

The total amount attributable to non- equity interest and the total amount attributable to equity interest.

· Current Assets


· Current Liabilities

· Long—Term Liabilities

Shareholders’  Funds

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S-O Strategies

W-O Strategies


S-T Strategies

W-T Strategies