E5-3 Internal controls liberal return policy for the holiday season in order to
ID: 2547355 • Letter: E
Question
E5-3 Internal controls liberal return policy for the holiday season in order to encourag ceipt, for cash or exchange. If the customer does not have a Obj 2, 3 Luli's Creations is a retail store specializing in women's clothing. The store has established a e gift purchases. Any item rchased during November and December may be returned through January 31, with a re- receipt, cash will still be refunded item under $100. If the item is more than $100, a check is mailed to the customer Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible.Explanation / Answer
a. Since there are no receipts required for returns under $100.Since the time gap between actual return and supervisor approving is two hours, the chances of employees embezzling them and they themselves return again with their friends or family members. After which they will pay the amount in the form of returns with already returned goods.Even the employees may bring some other goods which were not bought in the store and get them paid since no receipt is required.
b. The time gap between the actual return and paying the money and supervisor approving the return is the weakness in internal control , which is leading to thefts in cash.
c. The issuing of Store credit may bring the chances of reducing the cash fraud because the credit shall be in the name of the person with an identification.
Advantages:
1. There will be reconciliation between the store credits and the count of goods.
2. The employees cannot embezzle the goods within the two hours limit because there will be a bit control on the store credit which will have identification.
Disadvantages:
Even if there are no receipts then the chances of giving store credit may be there for the goods which were not purchased in the store as no receipt is required.
d.The following may be helpful in making the internal controls strong in the current situation
1.There should be an identification with the goods sold vs good returned.
2.A unique identification number should be present on each code like bar code so that no double refund can be claimed on the same product.
3.There should be a proper time allocated for cash receipts eg:2PM – 4 PM, refund shall be issued only after supervisor approving ther return. This will be a qualitative step towards minimising the fraud for cash refunds.
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