Analyze the following case: list two controlstrengths and two control deficiencies; for eachcontrol strength, describe how the problem (risk)is avoided (mitigated) by the control; for each control deficiency,describe how might the company improve itscontrols.
Hot Ice Company is a 10-store chain in Texas that sells freezersand accessories. Each store has a full-time, salaried manager andan assistant manager. The sales personnel are paid an hourly wageand a commission based on sales volume.
The company uses electronic cash registers to record eachtransaction. The salesperson enters his or her employee number atthe beginning of his/her shift. For each sale, the salespersonrings up the order by scanning the item’s bar code, which thendisplays the item’s description, unit price, and quantity (eachitem must be scanned). The cash register automatically assigns aconsecutive number to each transaction. The cash register prints asales receipt that shows the total, any discounts, the sales tax,and the grand total.
The salesperson collects payment from the customer, gives thereceipt to the customer, and either directs the customer to thewarehouse to obtain the items purchased or makes arrangements withthe shipping department for delivery. The salesperson isresponsible for using the system to determine whether credit cardsales are approved and for approving both credit sales and salespaid by check. Sales returns are handled in exactly the reversemanner, with the salesperson issuing a return slip whennecessary.
At the end of each day, the cash registers print a sequentiallyordered list of sales receipts and provide totals for cash, creditcard, and check sales, as well as cash and credit card returns. Theassistant manager reconciles these totals to the cash registertapes, cash in the cash register, the total of the consecutivelynumbered sales invoices, and the return slips. The assistantmanager prepares a daily reconciled report for the store manager’sreview.
Cash sales, check sales, and credit card sales are reviewed bythe manager, who prepares the daily bank deposit. The managerphysically makes the deposit at the bank and files the validateddeposit slip. At the end of the month, the manager performs thebank reconciliation. The cash register tapes, sales invoices,return slips, and reconciled report are mailed daily to corporateheadquarters to be processed with files from all the other stores.Corporate headquarters returns a weekly Sales and CommissionActivity Report to each store manager for review.
