(CMA adapted, June 1994) Richards Furniture Company is a 15-store chain, concentrated in the southwest, that sells living room and bedroom furniture. Each store has a full-time manager and an assistant manager, who are paid on a salary basis. The cashiers and sales personnel typically work part-time and are paid an hourly wage plus a commission based on sales volume. The company uses cash registers with four-part sales invoices to record each transaction; the invoices are used regardless of the payment type (cash, check, credit card).
On the sales floor, the salesperson manually records his/her employee number and the transaction, totals the sales invoice, calculates any appropriate discount and the sales tax, and calculates the grand total. The salesperson then gives the sales invoice to the cashier, retaining one copy in the sales book.
The cashier reviews the invoice and inputs the sale into the cash register. The cash register automatically assigns a consecutive number to each transaction. The cashier is also responsible for obtaining credit authorization approval on credit card sales and approving sales paid by check. The cashier gives one copy of the invoice to the customer and retains the second copy as the store copy. Returns are handled in exactly the reverse manner with the cashier issuing a return slip when necessary.
At the end of each day, the cashier sequentially orders the sales invoices and provides cash register totals for cash, credit card, and check sales, as well as cash and credit card returns. These totals are reconciled by the assistant manager to the cash register tapes, the total of the consecutively numbered sales invoices, and the return slips. The assistant manager prepares a daily reconciled report for the store manager’s review.
Cash sales, check sales, and credit card sales are reviewed by the manager, who then prepares the daily bank deposit. The manager physically deposits these at the bank and files the validated deposit slip. At the end of the month, the manager performs the bank reconciliation. The cash register tapes, sales invoices, return slips, and reconciled report are then forwarded daily to the central Data Entry Department at corporate headquarters for processing. The Data Entry Department returns a weekly Sales and Commission Activity Report to the manager for review.
Please respond to the following questions about Richards Furniture Company’s operations based on the preceding narrative:
a. What risks does Richards face?
b. If you were an unethical customer and/or employee of Richards, how could you defraud the
company given their current procedures?
c. What internal control strengths does the company possess? What risks are those strengths designed to address?
d. How could internal control be improved at Richards?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.