Question

Write a 175- to 260-word response to both question 1 and 2

The West End Boutiques company was founded by Libbie Williams in 1990 with a single store in College Station, Texas, and the company now has 21 shops located in the triangle of Dallas, San Antonio, and Austin, Texas. Libbie was an accounting major in college, passed the entire CPA in her first attempt with high scores, and worked for one of the large CPA firms for 11 years prior to opening her first store. Based on her work experience, she fully understands the value of strong internal controls. Further, she recently selected a state-of-the art accounting system that connects all of her stores' financial transactions and reports.

Libbie employs two internal auditors who monitor internal controls and also search for ways to improve operational effectiveness. As part of the monitoring process, the internal auditors take turns conducting periodic reviews of the accounting records. For instance, the company takes a physical inventory at all stores once each year and an internal auditor oversees the process. Chris Domain, the most senior internal auditor, just completed a review of the accounting records and discovered several items of concern. These were:

• Physical inventory counts varied from inventory book amounts by more than 6% at two of the stores. In both cases, physical inventory was lower.
• Two of the stores seem to have an unusually high amount of sales returns for cash.
• In 9 of the stores, gross profit has dropped significantly from the same time last year.
• At 4 of the stores, bank deposit slips did not match cash receipts.
• One of the stores had an unusual number of bounced checks. It appeared that the same employee was responsible for approving each of the bounced checks.
• In 7 of the stores, the amount of petty cash on hand did not correspond to the amount in the petty cash account.

Requirements

1. For each of these concerns, identify a risk that may have created the problem.
2. Recommend an internal control procedure to prevent the problem in the future.

Answer 1

P. Nol Answer :- ) . (a) The risk is that merchandise is stolen (b) Shoplifting is a very large problem for retailers. There should be better inventory Controls. There might include closed Circuit Cameras, tags that are removed during the sales process, and Security personnel. (2) The risk is that stolen merchandise is being returned for Carh. (6) Retwine should require a sales receipt. The store may also consider a policy of allowing returns for merchandise Credit only 3) (a) the risk that the state is losing income. (b). Either revenues ose down at Cost op Sales has increased. management needs to inspect there numbers closely to see where the problem lies. At least post of it could be attributable to

P. 2 to poor inventory Control. (a) The risk is that Cash will not be deposited. (6) This can easily be controlled by requiring daily reconciliations by a party not involved in receiving of depositing Carh. (a) the risk is that Cach will not be collected from Customers (6) The employee should be reprimanded. Esther all checes of checks exceeding a Specific dollar amount should be approved by some one other than the salesperson. 6) (a) the risk is that petty Cash will be pilfered (b) there should be a Custodian over petty cash who has soe responsibility for it. The custodian should never disbsure Caah without obtaining greceipt