University of Zululand, Private Bag X1001, KwaDlangezwa, 3886 W: www.unizulu.ac.za UNIVERSITY OF ZULULAND CABG402 - 2020 OBJECTIVE TEST 1 of 4 QUESTION You are a manager in the Advisory (Risk Management) division of KPMG Inc. You have recently been requested to assist the directors of Dabeka Ltd in identifying the risks that the company is facing as part of the clients focus on sound corporate governance. Mr Sibiya is the chief executive and major shareholder of Dabeka Ltd, a company supplies a range of specialised materials to the building industry. During your initial meeting you have ascertained the following: Revenue has grown from R40 million to R70 million in the last two years and the company is profitable. Further growth is anticipated as Mr Sibiya plans to expand the product base by setting up an overseas operation to manufacture silicon carbide components. A partly qualified accountant was recruited earlier in the year to help with credit control and to set up more formal accounting system and procedures. A desktop computer provides basic sales, receivables, inventory and payroll information. The software was written to Mr Sibiya's requirements by his brother- in-law. Each month there are varying small, but unreconciled differences between the receivables and payables ledgers and the control accounts. Management accounts are prepared on an ad-hoc basis using the information obtained from this accounting system. Mr Sibiya plays a significant role in the operations of the company. Despite this, Dabeka Ltd is currently experiencing a high level of returns of faulty materials supplied. Mr Sibiya is presently negotiating a bank loan to finance the cost of planned new premises. Contracts with builders have been signed and building work has commenced. The bank is waiting for a profit forecast before giving final approval for a R7 million loan. Dabeka Ltd has increasingly tended to exceed its agreed overdraft facility. Mr Sibiya has indicated that a large receipt from a major customer (who is in arears) is expected at the end of next month, and is to be used to clear tax arear. REQUIRED Identify and describe the principal business risks relating to Dabeka Ltd based on the information provided. (15) Adapted: Advanced Case Studies