Question

Dogtopia sells pet supplies and pet food items. All sales are rung up on the cash register by the cashier. The cash register does not display the amount of the sales to the customer and it does not record any change returned to the customer.   At the end of the day, the cashier counts the cash in the register and gives it to the supervisor for deposit in the companies bank account. The supervisor does not compare the cash with the daily sales tape generated by the cash register. Discuss the internal controls of Dogtopia. How would you change the internal Controls and why? Compare your responses to two other classmates' responses.

Answer 1

Internal controls of Dogotopia:

The internal controls of dogotopia is very much ineffective as they are maintaining the cash sales records in register only and there is no electronic record for the cash receipts of the sales effected ,there are 99% chances of manipulation of funds by the cashier.

The cashier of the dogopotia keeps no record of the sales returns and actual sales effected which creates a chaos among the sales records as it is not clear that how much amount of sales is actually effected and how much is returned and in which areas company need to improve to satisfy its customers. As there are no records for the sales returned by the customer the cashier can easily manipulate the funds and use it for personal benefit.

The company is not even taking care of what the sales is and what they get it in the form the cash and get the difference between them and check for the reason for it but instead of that cash recipits are not even checked.       

How would I change the internal controls?

Since cash is the most liquid assets for a company a company cannot survive and prosper if it does not have adequate control over its cash receipts and payments. The following internal controls must be followed:

(i) The cashier should account for all cash transaction occurring in a single day so that accurate and correct information is available with the company regarding balances and payments.

(ii) The company should deposit all cash receipts on the day they are received as early as possible.

(iii) Arrange duties so that employee who receives the cash doesn’t disburse the cash easily.

(iv) Obtain proper approval for all disbursement and create of permanent record of each disbursement.

(v) Create electronic record of cash sales and each sales returns on single day basis.

Why would I change the internal controls?

· The company is not maintaining any internal controls necessary for the operational controls among the employees.

· The internal controls helps to mitigate risk for cash disbursement

· The internal control help to prevent and detect fraud risk.

· To protect and safeguard the company from victimized

· To obtain greater efficiencies among the cash receipts and payments

· To comply the applicable laws and regulation

Two other classmates has the same opinion as of mine as the internal control is necessary in every field. The two other classmates have opinion that company should obtain effective controls to save their company from fraud and risk of misappropriation of funds. They has asserted that company instead of maintaining the electronic record may also record them in the same register for the sales and its returns. The cashier should count the cash in front of supervisor only.