Question

Harper Theater is located in Midtown Mall. The cashier’s booth is near the entrance to the theater. Two cashiers are employed. Once works from 1-5 p.m., the other from 5-9 P.M.   Each cashier is bonded. The cashiers receive cash from customers and operate a machine that ejects serially numbered tickets. The rolls of tickets are inserted and locked into the machine by the theater manager at the beginning of each cashier’s shift.

After purchasing a ticket, the customer takes the ticket to an usher stationed at the entrance to the theater lobby some 60 feet from the cashier’s booth. The usher tears the ticket in half, admits the customer, and returns the ticket stub to the customer. The other half of the ticket is dropped into a locked box by the usher.

At the end of each cashier’s shift, the theater manager removes the ticket roll from the machine and makes a cash count. The cash count sheet is initialed by the cashier. At the end of the day, the manager deposits the receipts in total in a bank night deposit vault located in the mall. The manager also sends copies of the deposit slip and the initialed cash count sheets to the theater company treasurer for verification and to the company’s accounting department. Receipts from the first shift are stored in a safe located in the manager’s office.

1.) Identify the internal control procedures and their application to the cash receipts transactions of the Harper Theater. You will find the Internal Control Procedures on pages 433 through 435 of your textbook. For each Internal Control Procedure described in your textbook, identify any Internal Control Procedures that Harper Theater has in place and/or is missing. Be specific and use at least 300 words for your answer.
Be specific and use at least 300 words for your answer.

2.) If the usher and cash decide to collaborate to misappropriate cash, what actions might they take? For each action, what internal control might be employed to stop the misappropriation of cash? Be specific and use at least 200 words for your answer.

3.) Use complete sentences and good grammar.  

Answer 1

1) The primary and main internal control procedure which could be identified from the given case of Harper Theater is "segregation of duties". The other well evident control is "Internal Check System".

Segregation of Duties: This is the method in which one kind of task/ function is performed by a single person or a team. Similarly the other set of function is performed by other person or team. In the instant case, the task of selling tickets is done by cashier who is also responsible for collecting cash. The task of admitting people to theatre is done by usher who also checks the tickets and tears the counterfoils which is further dropped in a locked box.

In this way there is a double check system where the work of cashier is automatically checked by the usher and there is still scope of checking for the usher's work, where the counterfoils dropped in the locked box can be checked back from the cash sheet prepared by cashier.

Internal Check System: Here the work of one component automatically gets checked by the other component. This has been explained in the preceeding paragraph.

Missing Control: There is a serious threat to the revenues of theater where the cashier and usher can collaborate and indulge in malpractices. Cashier may not issue tickets to the customer and instead give them a hand written slip of lesser amount. The person can show this slip to usher who will grant entry tothat person to theater. In this way they can share the receipts and misappropriate the cash. There is no way to prevent this kind of fraud in current existing system of internal control.

2) Usher and Cashier may collaborate and misappropriate cash as described in above part. The Theater needs to have a strong control for this kind of misappropriation. Main measures to avoid this fraud could be:

1. Periodic surprise checking by theater manager of the tickets of people sitting inside the theater during the intervals.

2. Job rotation of cashiers and shifting their shifts.

3. Rotating cashiers and ushers from one theater to other theaters being run by the same company in same town.

4. Counting of counterfoils dropped in locked box with the summary submitted by cashier.

5. Periodic surprise counting of vacant seats during the show and matching them with the ticket rolls left unsold.

Conclusion: In this way the frauds can be prevented.

Hope this solves your problem.