Question

. Write an IOM to the CEO concerning your analysis of the following case stating strengths and weaknesses giving testing tools and recommendation for controls.

A Spring Water Spa Company is a 15-store chain in the Midwest that sells hot tubs, supplies and accessories. Each store has a full-time, salaried manager and an assistant manager. The sales personnel are paid an hourly wage and a commission based on sales volume.

The company uses electronic cash registers to record each transaction. The salesperson enters his or her employee number at the beginning of his/her shift. For each sale, the salesperson rings up the order by scanning the item’s bar code, which then displays the item’s description, unit price, and quantity (each item must be scanned.) The cash register automatically assigns a consecutive number to each transaction. The cash register prints a sales receipt that shows the total, any discounts, the sales tax, and the grand total.

The salesperson collects payment from the customer, gives the receipt to the customer, and either directs the customer to the warehouse to obtain the items purchased or makes arrangements with the shipping department for delivery. The salesperson is responsible for using the system to determine whether credit card sales are approved and for approving both credit sales and sales paid by check. Sales returns are handled in exactly the reverse manner, with the salesperson issuing a return slip when necessary.

At the end of each day, the cash registers print a sequentially ordered list of sales receipts and provide totals for cash, credit card, and check sales, as well cash and credit card returns. The assistant manager prepares a daily reconciled report for the store manager’s review.

Cash sales, check sales, and credit card sales are reviewed by the manager, who prepares the daily bank deposit. The manager physically makes the deposit at the bank and files the validated deposit slip. At the end of the month, the manager performs the bank reconciliation. The cash register tapes, sales invoices, return slips, and reconciled report are mailed daily to corporate headquarters to be processed with files from all the other stores. Corporate headquarters returns a weekly Sales and Commission Activity Report to each store manager for review.

Answer 1

Solution

Inner Office Memo

To: CEO, Ocean View Spa Company

Date: 1st Dec'2017

Subject: - Analysis of companies strength and weaknesses

Thank you for allowing me to work with your company. We have evaluated the strengths and weaknesses of your company’s existing operational activities and also evaluated that there is a need of change. While evaluating your current operational system it is found that you provide a freedom to your employees at work place as it is seen that the hierarchy in the store is kept very simple by keeping a Manager and an Assistant Manager. Many latest technologies are also found being used like E- Register for tracking sales as well as employee’s attendance. It is also found that the Sales Personnel are paid hourly wages and commission based on the sales volume. This motivates them to extend their working hours as well as give their best for increasing the sales

While evaluating we had several face to face conversation with the Sales Personnel as well as with the Manger and the Assistant Manager. We found after that that although the Sales personnel were highly motivated but Manger and Assistant Manager were not found to be very happy with the system of payment is being done to the Sales Personnel. As Sales personnel were found being paid hourly wages and also get commission for increase in the sale volume sometime a Sales Personnel salary gets more than what the Manager and the Assistant Manger gets which in turn becomes demotivating for them.

It is also found that the Manager after getting the daily reconciled report from the Assistant Manger and reviewing it makes daily deposit of it physically visiting the bank. This is risky as well as time consuming.

Our evaluations have also found that as the reports are generated daily and being sent to the corporate headquarters based on which they send the Sales and Commission Activity Report to Each Store Manager. Whereas a Manager prepares the Bank reconciliation report on monthly basis. It may lead to many financial loses as well as spreading misinformation like not getting proper idea of the store sales and making wrong payment to Sales Personnel.

Therefore after several evaluations I strongly recommend few changes to be done to the current system:

I) Introducing few Rewards and Recognition activities for the Managers and the Assistant Managers of the stores.

ii) Instead of visiting bank on regular basis physically using net banking which is easier and faster

iii) Preparing bank reconciliation report on weekly basis so as to get an accurate data

iv) The Sales and Commission report sent by the corporate headquarters weekly should be sent every 15th day of a month so as to get a proper evaluation done of the bank reconciliation report before sending the report to the store.

These recommendation allow you to get a clear and accurate picture of the sales volume made every month as well as to smoothen the operations of Ypur Company

Thanking You

Rosy Win set

External Auditor

XYZ Ltd.