Internal controls - Case Study Example

a) There are several risks or loopholes in the process. First of all salespersons can make wrong invoices. They may charge the s far less than the actual amount of inventory purchased. This can result in a loss for the company and the salesperson will not be caught until the physical audit of inventory takes place. Similarly, since the process is lengthy and there is too much paper work there are more chances of error. There is a motivation for salesperson to overcharge customers for commission.

This may tarnish the reputation of the company. Manager can also cheat the company by depositing fewer cash in the bank account then what is collected and manipulating the daily sales record.b) I would bribe the salesperson to make an invoice which is much less than the original amount and later share the profit with this employee. Later, I can also return some items and claim a much higher amount than the actual value of the items. This would help us double charge the company and defraud a much higher amount from Richard’s Furniture Company.

Also the assistant manager and manager can defraud the company by manipulating the sales records by joining hands and prepare understated sales report and keep some cash with them. c) The company works on the double checking principle. The records are checked thrice. Another important strength of the company is that invoices makers and the cashier are different people. Data Entry Accountants sit in the head office and cashier and accountants have no link. This leads to transparency. The company also has assistant manager and manager to review the entire process.

Bank reconciliation is also used to make sure that frauds are minimized. Since cashier and invoice makers are different people, they can be held accountable. There is a trace for the company to find out who made the mistake. A wrong invoice is the mistake of the sales person and if cash collection is less than it is the fault of the cashier. Similarly, cashier and sales persons cannot defraud the company without the support of the customer because they cannot manipulate the books as accountants sit in the head office and they have no say whatsoever in the daily operations of the business.

All of this helps the company to attribute the fraud to the fraudsters and to make sure that the strong control is levied by having independent people for accounting, cash collection and invoice making. This would keep a check on all people and chances of frauds would be minimized.d) The company can minimize the customer risk by having daily physical audit of the inventory. If the inventory is found to be missing or less than what is recorded in the book than salesperson should be fined. If this phenomenon lingers on then the company can take strict action and can hold investigation to find out which salesperson or cashier is not doing justice to his job.

They can be fired or fined for the amount they have stolen.