Question

Jonathan is the sole shareholder of Furry Lion Stores, a company which owns five stores in the
west of England. The stores sell mainly food and groceries.
Each store is run by a full time manager and three or four part-time assistants. Jonathan spends
on average half a day week at each store, and spends the rest of his time at home, dealing with
his other business interests.
All sales are cash and recorded on till rolls which the manager retains. Shop managers’ wages
are paid monthly by cheque by Jonathan. Wages of shop assistants are paid in cash out of the
takings.
Most purchases are made from local wholesalers and are paid for in cash out of the takings.
Large purchases (over 2,500.00 GHC) must be made by cheques signed by the shop manager
and countersigned by Jonathan.
Shop mangers bank surplus cash once a week, apart from a float in the till.
All accounting records including the cash book, wages and sales tax records are maintained by
the manager. Jonathan reviews the weekly bank statements when he visits the shops. He also
has a look at the inventory to see if inventory levels appear to be about right. All invoices are
also kept in a drawer by a manager and marked with a cash book reference, and where
appropriate a cheque number when paid.
Required
Discuss the deficiencies in the control systems (Inventory, cash, bank, reconciliation,

kindly answer ASAP
VERY URGENT

Different opinions needed ASAP

Answer 1

*Any doubt please comment

Inventory: The store does not appear to have any inventory record keeping practice. The owner only " looks" at the inventory levels to check if they are right i.e. uses approximation techniques which can lead to a risk of running out of inventory and it is difficult to determine if the inventory levels are too high or too low. Any loss or pilferage in inventory is cannot be detected without proper accounting records.

Cash : All transactions are majorly carried out in cash which risks holding too cash by the business. There is also no segregation of duties as the manager who maintains the cash book is also responsible for cash payments and signing of the cheques. This can lead to fraudulent transactions being undertaken by him and siphoning off of funds. There is also seems little documentation to support cash payments.

Bank: Bank transactions are carried out on a minimal basis and there is no book keeping for bank or cheque transactions. All payments or receipts through bank are recorded in the cash book and this may never reconcile the books.

Cash reconciliation: There is nothing to indicate that the till rolls retained are reconciled to the cash takings. A daily reconciliation of the cash taking and till rolls must be carried out by a person independent to the store manager.

Bank reconciliation: Bank reconciliations do not seem to be taking place and the owner will never know of where the cash in the being is used for. This increases the risk of fraud as well.

Purchases: There is no record keeping for inventory purchases and there no proper way of maintaining invoices as well. With no proper records of purchases accounting it will be difficult to prepare financial statements and determing the statement of affairs of the business.

General Ledger: There is no mention of a general ledger being maintained which implies that the financial statements and management accounts cannot be prepared easily.