87.1 12 marker

Question 1

Managers at the shops regularly used cash from the cash register to pay local suppliers for ad
hoc purchases. On several occasions, the managers did not adhere to company policy to record
the purchase on an expense form and then put the form in the cash register.

Answer 1

Ad hoc purchases are paid out of the cash register

Consequences
Cash sales and purchases may be understated.
Managers may take cash for own expenses/steal from the cash register

Recommendations
The practice of paying for ad hoc expenses out of the cash register should be ended.
Petty cash should be available at each sandwich shop with an imprest system; or managers
issued with a company credit card to use for local purchases.
Copy of receipts should be kept.

Question 2

2) At the end of each day, the reconciliation of cash in the cash register with the register’s records
(“cashing up”) was often performed by a single individual who was also responsible for banking
that day’s takings.

Answer 2

(2) Reconciliation of cash to cash register records and banking procedures

Consequences
There is an increased risk of theft which may go undetected.

Recommendations
Two employees should perform the cashing up together.
The cashing up documents should be signed by both employees.
There should be segregation of duties so that the banking is performed by an employee not
involved in the cashing up.
A subsequent reconciliation of amounts banked with cash register records should be
performed by head office.

Question 3

(3) Employees working in the shops regularly failed to log in or out of the cash register system. This
resulted in some employees using the cash register when logged in as another employee.

Answer 3

(3) Employees in shops fail to log in or out of the cash register system

Consequences
Unauthorised access to cash registers may occur increasing the risk of theft.
Downe will be unable to properly track who transactions were processed by nor identify which
employees have made errors.
There may be a lack of accountability amongst employees.

Recommendations
Automatically log employee out of the cash register after a set period of time.
Use of swipe cards or biometrics to log in.
Produce exception reports to identify employees who have been logged in for longer than
expected.
Place a visible reminder on each cash register.

Question 4

There was no evidence that bank reconciliations performed at head office had been reviewed by
the financial controller

Answer 4

No evidence of bank reconciliations being reviewed

Consequences
Reconciliations or the review of the reconciliation may not be performed.
Reconciling items may not have been followed up.
Theft, fraud or errors may go undetected.
Cash balances in the accounting records may be misstated.

Management may not be aware of the true cash balance. This could lead to poor management
decisions such as cash surpluses not being invested, resulting in lost income, or overspending
resulting in the use of the bank overdraft facility and incurring bank interest costs.

Recommendations
The financial controller should review the bank reconciliation promptly every month and
ensure that any reconciling items are satisfactorily explained.
The financial controller should sign the bank reconciliation as evidence that the review has
been performed.

Question 5

No checks were carried out in respect of fresh ingredients delivered by suppliers directly to the
shops.

Answer 5

There is no check carried out in respect of fresh ingredients delivered by suppliers

Consequences
Fresh ingredients delivered by suppliers may be of poor quality resulting in wastage.
Incorrect goods or incorrect quantities may be delivered.
Downe may not be able to fulfil customers’ orders resulting in customer dissatisfaction.
Downe may be overcharged by suppliers.

Recommendations
Designated staff to inspect the quality of fresh ingredients on delivery.
Compare the quantity and type of ingredients to the delivery note and purchase order.
Record goods received/retain copy of delivery note.
Implement a checklist for the receipt of goods which is signed to evidence the completion of
the checks.
The goods received record/delivery note should be made available to the accounts payable
department which should compare invoices to the goods received record/delivery note before
making payment

Question 6

General

Answer 6

Adverse impact on profit/cash flow
Training of employees
Disciplinary action
Monitoring/spot checks