The following are several internal control weaknesses of a retail business in re
ID: 2491122 • Letter: T
Question
The following are several internal control weaknesses of a retail business in regard to its cash payments, accounts payable and inventory
i) The inventory of gold jewellery for sale is kept in unlocked display cases.
ii) One employee is responsible for ordering inventory and writing cheques.
iii) Some purchases are made by phone, and no purchase order is written
iv) Employees are allowed to bring coats, bags and handbags into working areas
v) Inventory received at the loading dock is rushed immediately to the sale floor before it was counted.
vi) When inventory is low, any sales employee can prepare a purchase order and post it to the supplier.
Required
a) For each internal control weakness, explain how the weakness might result in a loss of the assets of the business
b) For each internal control weakness, explain what action should be taken to correct the weakness.
Explanation / Answer
1.The inventory of gold jewellery for sale is kept in unlocked display cases: In such case there may be a chance of theft of jewellery by employee
Action to to correct the weakness.:1.put lockers and CC camera for timely check.
2.One employee is responsible for ordering inventory and writing cheques: Since one person is responsible for ordering inventory and writing cheques, there is a chances of mis utilisation or embezzlement of cash
Action to to correct the weakness: Segregate the duties among more than one or two persons
3.Some purchases are made by phone, and no purchase order is written:NO documentation for further reference and authorization
Action to to correct the weakness: Establish proper authorization levels and order purchases through proper authorization channel
4.Employees are allowed to bring coats, bags and handbags into working areas: Since Inventory is jewellary whci can be accommadated easily in their bangs and coats
Action to to correct the weakness: Keep their bangs and coats out side the inventory area or check the every emoployee when they leave working area
6.When inventory is low, any sales employee can prepare a purchase order and post it to the supplier.: No proper authorization channel as any one order, it may leads to accumulation of huge inventory .
Action to to correct the weakness:The responisibilty of making inventory oder should be entrusted with one person
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