Question

Gary Theater is in the Hoosier Mall. A cashier's booth is located near the entrance to the theater. Two cashiers are employed. One works from 1:00 to 5:00 p.m., the other from 5:00 to 9:00 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 a doorperson stationed at the entrance of the theater lobby some 60 feet from the cashier's booth. The doorperson 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 doorperson. At the end of each cashier's shift, the theater manager removes the ticket rolls 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. In addition, the manager 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. (a)Identify the internal control principles and their application to the cash receipts transactions of Gary Theater. (b)If the doorperson and cashier decided to collaborate to misappropriate cash, what actions might they take?

Answer 1

a) The following are the internal control principles and their application:-

Principle 1:- Establish Responsibility - The responsibility should be clearly identified. The cashiers' responsibility isivery clearly provided. They just have to collect cash and give the ticket to a customer. The Theatre Manager inserts the roll of tickets every day and also removes the roll every day. His responsibility is also fixed. The cash is deposited by the manager. The cashier initials the cash count sheet.

Principle 2 :- Segregate duties - One person should not be in charge of the entire process. In the above case, the theatre has a manager, two cashiers, the door person and the treasurer. So, the duties are clearly segregated.

Principle 3 :- Restrict Access - No information or cash should be accessible to any person who does not need it for the discharge of his/her duties. The cash in the above case is accessible only by the manager.

Principle 4:- Document Procedures - Actions that have occured should be documented properly. In the above case, the cash details document is initialled by the cashier and is sent to the treasury as a cross checking measure.

Principle 5 :- Independently verify - The work done by someone should be independently checked by others. In the above case, the manager and treasurer check the work of the cashier.

b) If the door person and cashier decided to collaborate to misappropriate cash, they might do the following:-

Instead of giving a ticket to the customer, let the customer in by accepting cash. The door person will anyways allow the customer in as he would be getting the split amount. The cashier would pocket the cash and later split it with the door person.