Question

In: Accounting

Write a 175- to 260-word response to both question 1 and 2 The West End Boutiques...

Write a 175- to 260-word response to both question 1 and 2

The West End Boutiques company was founded by Libbie Williams in 1990 with a single store in College Station, Texas, and the company now has 21 shops located in the triangle of Dallas, San Antonio, and Austin, Texas. Libbie was an accounting major in college, passed the entire CPA in her first attempt with high scores, and worked for one of the large CPA firms for 11 years prior to opening her first store. Based on her work experience, she fully understands the value of strong internal controls. Further, she recently selected a state-of-the art accounting system that connects all of her stores' financial transactions and reports.

Libbie employs two internal auditors who monitor internal controls and also search for ways to improve operational effectiveness. As part of the monitoring process, the internal auditors take turns conducting periodic reviews of the accounting records. For instance, the company takes a physical inventory at all stores once each year and an internal auditor oversees the process. Chris Domain, the most senior internal auditor, just completed a review of the accounting records and discovered several items of concern. These were:

  • Physical inventory counts varied from inventory book amounts by more than 6% at two of the stores. In both cases, physical inventory was lower.
  • Two of the stores seem to have an unusually high amount of sales returns for cash.
  • In 9 of the stores, gross profit has dropped significantly from the same time last year.
  • At 4 of the stores, bank deposit slips did not match cash receipts.
  • 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.
  • 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.

Solutions

Expert Solution

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 mis- matching of inventory.

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

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

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

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

f.) Management team should hire department manager to monitor and control over his employee.

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

2.) Internal control procedure

A.) Management should involves in the stores 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.) 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 occurs store manager should ask for sales receipt. And stores should issue the credit note for any sales return. It will help in maintain the sales record.

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

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


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