Question

Dolphin Surf & Leisure Holidays Pty Ltd (Dolphin) is a resort company based on the Great Barrier Reef. Its operations include boating, surfing, diving and other leisure activities, a backpackers’ hostel, a family hotel and a five-star resort. Justin and Sarah Morris own the majority of the shares in the Morris Group which controls Dolphin. Justin is the chairman of the board of directors of both Dolphin and the Morris Group, and Sarah is a director of both companies as well as the CFO of Dolphin.

Justin and Sarah have a fairly laid back management style. They trust their workers to work hard for the company and reward them well. The accounts staff, in particular, are very loyal to the company. Justin tells you that some accounts staff enjoy their jobs so much they have never taken any annual leave, and hardly any workers ever take sick leave. Justin and Sarah have not bothered much in the past with formal procedures and policies, but they have requested the accounts staff to start documenting the more common procedures. They do not conduct formal performance reviews; they rely on their staff to tell them when there is a problem.

There are three people currently employed as accounts staff, the most senior of which is Peter Pinn. Peter heads the accounts department and reports directly to Sarah. He is in his fifties and plans to retire in two or three years. Peter prides himself on his ability to delegate most of his work to his two accounts staff, Kristen and Julie. He claims he has to do this because he is very busy developing the policy and procedures manual for the accounting department. The delegated work includes opening mail, processing payments and receipts, banking funds received, performing reconciliations, posting journals and performing the payroll function. Julie is a recent Chartered Accountant graduate. Kristen works part time — coming into the office on Mondays, Wednesdays and Fridays. Kristen is responsible for posting all journal entries into the accounting system and the payroll function. Julie does the balance of the work, but they often help each other out in busy periods. Kristen authorises Julie’s transactions and Julie returns the favour by authorising Kristen’s transactions. Together, they usually make the accounts balance.

Assess the internal controls at Dolphin. What changes would you recommend?

Answer 1

	Internal controls at Dolphin
	The accounts department is headed by an aged person who is on the verge of retirement.
	Under the head of accounts department, Peter, only two staffs take care of all the works.
	The work style is traditional approach which is fully based upon trust and loyalty.
	There is full attendance of staff always
	There are no strict rules and procedures to control the team.
	There are no formal performance reviews and the issues are being sorted out orally
	Changes required in the Internal control system at Dolphin
>	The owners have to encourage the staff to take leave atleast once in a year so they could identify the reasons of internal deficiency, if any.
>	The process of delegation of work and segregation of duties can be laid down by assigning proper duties to each staff so that the other does not perform his work.
>	The staff's work should be reviewed by a third person who is not involved in the work.
>	The line of reporting can be altered- Staff to Reviewer to head to owners.
>	The owners should also have internal discussions with staff to understand the ground level issues and the ways of solving them.