Internal controls The following is an excerpt from a conversation between two sa

Question

Internal controls The following is an excerpt from a conversation between two sales clerks, Tracy Rawlin and Jeff Weimer. Both Tracy and Jeff are employed by Magnum Electronics, a locally owned and operated electronics retail store. Tracy: Did you hear the news? Jeff: What news? Tracy: Bridget and Ken were both arrested this morning. Jeff: What? Arrested? You're putting me on! Tracy: No, really! The police arrested them first thing this morning. Put them in handcuffs, read them their rights-the whole works. It was unreal! Jeff: What did they do? Tracy: Well, apparently they were filling out merchandise refund forms for fictitious customers and then taking the cash. Jeff: I guess I never thought of that. How did they catch them? Tracy: The store manager noticed that returns were twice that of last year and seemed to be increasing. When he confronted Bridget, she became flustered and admitted to taking the cash, apparently over $15,000 in just three months. They're going over the last six months' transactions to try to determine how much Ken stole. He apparently started stealing first. Suggest appropriate control procedures that would have prevented or detected the theft of cash.

Explanation / Answer

1) Seperation of duties- Firstly there had to be seperation of duties . Sales and return should have been different departments. With this chances of fraud through this of transaction is reduced to NIL as each return transaction will be properly analysed for its genuinity and then any further action could be taken

2) Approval authority - special transactions like these should have been subject to special approval authority of store manager or any higher official in store. Through this each transactions would have double check. It would prevent occurence of any fraud

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