Several concerns were discovered while senior internal auditor, Chris Domain, reviewed the

accounting records of the West End Boutiques company founded by Libbie Williams. Those

concerns were:

 

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Physical inventory counts varied from inventory book amounts by more than 6% at two

of the stores. In both cases, physical inventory was lower.

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Two of the stores seem to have an unusually high amount of sales returns for cash.

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In 9 of the stores, gross profit has dropped significantly from the same time last year.

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At 4 of the stores, bank deposit slips did not match cash receipts.

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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.

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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.

1.) Identification of risk that created the problem.

a.) auditor should conduct more than 12 times in a financial year to detect the reason behind mismatching of inventory.

b.) physical auditing of inventory will help in better inventory controls.

c.) Stores should install closed-circuit cameras for the prevention of any damages.

d.) It will also help to control in terms of security personnel.

e.) Installations of CCTV Cameras help to monitor the sales, cash received, and other risk factors.

f.) The management team should hire a department manager to monitor and control his employee.

G.) management should involve an accountant to find the reasons for the sales drop.

2.) Internal control procedure

A.) Management should involve in the store's activity to controls the requiring daily reconciliations by a party not involved in receiving or depositing cash.

B.) Mismatches of cash because of either not collecting the credit sales or stores don't maintain the proper the accounts for the expenses (petty expenses ).

C.) Management should involve a custodian for petty cash who has sole responsibility for it. The custodian should never disburse cash without obtaining a receipt.

D.) The store manager should maintain the full records of the inventory to prevent the risk of stolen products. It will also help to determine whether the products are stolen or returned by customers.

E.) If any sales returns occur store manager should ask for a sales receipt. And stores should issue a credit note for any sales return. It will help in maintaining the sales record.

F.) To increases sales store may also consider a policy of good credit facilities for loyal customers.

G.) stores should offer discounts or any attractive offers to its customer for achieving the target sales.