Question

Anasazi Earth Clothing is a retail store specializing in women’s clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item less than $100. If the item is more than $100, a cheque is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Anasazi Earth Clothing have reached an all-time high. The store has received a large number of returns of less than $100 without receipts.

1. How can sales clerks employed at Anasazi Earth Clothing use the store’s return policy to steal money from the cash register?

2. What internal control weaknesses in the return policy make cash thefts easier?

3. Would the possibility of theft be reduced by issuing a store credit in place of a cash refund for all merchandise returned without a receipt? List the advantages and disadvantages of issuing a store credit in place of a cash refund.

4. Assume that Anasazi Earth Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes in the store’s procedures for customer refunds would improve internal control?

Answer 1

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