Question

Each of the following independent situations has one or more control activity weaknesses:

1. Board Riders Ltd. is a small snowboarding club that offers specialized coaching for snowboarders who want to improve their skills. Group lessons are offered every day. Members who want a lesson pay a $25 fee directly to the instructor at the start of the lesson that day. Most members pay cash. At the end of the lesson, the instructor reports the number of students and turns over the cash to the office manager.

2. Coloroso Agency Corp. offers parenting advice to young single mothers. Most of the agency’s revenues are from government grants. The general manager is responsible for all of the accounting work, including approving invoices for payment, preparing and posting all entries into the accounting system, and preparing bank reconciliations.

3. At Nexus Corporation, each salesperson is responsible for deciding on the correct credit policies for his or her customers. For example, the salesperson decides if Nexus should sell to the customer on credit and how high the credit limit should be. Salespeople receive a commission based on their sale.

4. Algorithm Limited is a software company that employs many computer programmers. The company uses accounting software that was created by one of the employees. In order to be more flexible and share the workload, all of the programmers have access to the accounting software program in case changes are needed.

5. The warehouse manager at Orange Wing Distributors Ltd. is well known for running an efficient, cost-saving operation. He has eliminated the requirement for staff to create receiving reports and purchase orders because it was taking too long to prepare them.

Instructions

Identify the control weakness(es) in each of the above situations, the problems that could occur as a result of these weaknesses and also make recommendations for correcting each situation using the format below:

Control weakness(es)	Problems that could occur	Recommendations

Answer 1

CONTROL WEAKNESS	PROBLEMS that could occur	RECOMMENDATIONS
1.Improper Management	Since the Payment is done directly to the instructor who reports the number of students, there are chances where he can MANIPULATE the number to the manager	Appropriate employee to be assigned who ensures cash is handles to him , so that manipulation reduces.
2.Accounting entries	Mistake can happen when GM takes cares of all activities	There should be person appointed for accounting team
3.Credit policy	Based on the need of sales man he fix up credit limit and average collection period which might not be correct	There should be even credit policy ,and encourage uniform discount policy
4.Access rights	Since the software was created by one person, he might be an expert in that area, if any change is to be made, others might not know the hook and corner of it	access rights to be restricted
5. Work load increase	If he focuses on all small activities he might not be able to run a smooth operations	A dedicated person to be appointed to share work load