Each of the following independent situations has a control activity weakness:
1. Rowena’s Cleaning Service Inc. provides home cleaning services for a large number of clients who all pay cash. Rowena collects the cash and keeps it in the glove compartment of her car until the end of the week when she has time to count it and prepare a bank deposit.
2. Hornet’s Convenience Store Limited sells a variety of items, including cigarettes, non-alcoholic beverages, and snack foods. A long-term employee is responsible for ordering all merchandise, checking all deliveries, and approving invoices for payment.
3. At Ye Olde Ice Cream Shoppe Ltd., there are three sales clerks on duty during busy times. All three of them use the same cash drawer.
4. Most customers at Better Used Car dealership use the option to pay for their vehicles in 24 equal payments over two years. These customers send the company cheques or cash each month. The office manager opens the mail each day, makes a bank deposit with the cash and cheques received in the mail that day, and prepares and posts a journal entry in the accounting records.
5. Jimmy’s Truck Parts Ltd. employs sales staff who visit current and prospective customers. The sales staff will keep product samples in their vehicles so they can demonstrate the product to the customers. If a customer has a large order, the order is e-mailed to the warehouse. The warehouse then ships the product to the customer on account. If a customer wishes to purchase one or two sample items, the salesperson can sell these for cash or on account. To obtain more inventory, the salespeople go to the warehouse and restock the vehicle themselves.
Instructions
(a) Identify the control weakness(es) in each of the above situations.
(b) Explain the problems that could occur as a result of these weaknesses.
(c) Make recommendations for correcting each situation.
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