Question

QUESTION 2 (25 marks) Recently, while having dinner with your family at Penang Kayu Nasi Kandar to celebrate the completion of your Auditing Test 1, you observed a practice that is somewhat unusual. As you settled down in the restaurant, a waiter quickly came over to take your order and then brought you the food that you requested. He then wrote down all the food that you and your family members had ordered on a bill and entered the number of persons in your family at the top right- hand corner of the bill. He handed the bill over to you and asked you to pay when you have finished eating. Towards the end of the meal, you decided to have some additional dishes, so you called one of the waiters and the waiter went through the same procedures again. After bringing you the additional dishes requested, the waiter issued another bill for the additional dishes and stapled the bill to the first bill issued earlier on and returned both bills to you. When you were about to leave the restaurant, you handed the bills over to the cashier stationed near the entrance of the restaurant, who totaled the bills, took your money, and put the bills in the drawer at the counter. Required: a) Based on the above, identify and explain all the internal control procedures instituted by Penang Kayu Nasi Kandar to control its daily operations. Are there any weaknesses in the restaurant's existing control procedures that you have identified? If there are, state why you feel that it is a weakness and suggest what the restaurant's management can do to correct the weakness (without investing in any IT related controls). (15 marks)

Answer 1

The Internal Contol measures adopted by the Penang Kayu was having its own Limitation and it cannot be said to be a perfect internal control procedure. These are tabulated in the table below.
S. No	Control Procedure	Purpose of the Control Procedure
1	Centralise Billing System	Bill must be prepared by some accountant or other person, not by the waiter itself.
2	Issue of Foods from Kitchen or Stores.	There must be a system which records the issue and receipt of foods item from kitchen or stores
3	Internal checking system	Work done by one person must be cheked by some other person before it becomes final
4	Arthmetical checking of Bill	If sum total of the bill is wrong, it will result in to loss to the restaurent
5	Waiter can do fraud	Since there is no control over waiter, it is very easy for him to make fraud
6	Incomplete Accounting of Inventory,	If centralize processing is not done for Inventory, no real time data of foods, other items will be available.
7	Multiple billing system	All the items taken by a customer should be added in single bill at the time of payment. No scope for additional billing by the waiter himself.

S. No	Weakness in the Control Procedure	Why it is Weakness	Ways to Correct the weakness
1	No effective billing system	if item is supplied by the waiter and bill is also prepared by the waiter itself, then chances of fraud is increased	seggregate the duty of waiter, and not allow him to prepare bill
2	Control over issue of foods from kitchen and stores	waiter may issue excess items from kitchen or stores, but may not enter it in to the bill	cross checking of items issued from kitchen or stores with the items mentioned in the bill should be dne on regular basis.
3	Lack of Internal Checking System	restaurent do not have any Internal Checking System to check the bill prepared by the Waiter.	bill preparation work should be handed over to some other person, and that work is also reviewed periodically.
4	Manual Billing	there may be every chance of arithmatical mistake, if billing is done manually	an automatic billing system should be implemented.
5	Incomplete Inventory Record	if billing is done manually, no real time data of stock or inventory will be available	real time inventory processing system should be implemented
6	No multiple billing	if multiple billing is done, it may some time cost to the restaurent, if any bill lost for any reason.	centralise billing system at the counter of the restaurent should be implemented to avoid any risk of multiple billing.

Anshary may consider table one, and evaluate the process with reference to this table to evaluate the effectiveness of the Internal control. Then he may adopt the recommendation given in table two to improve the effectiveness of the Internal control of the restaurent.

Thanks