Internal Control Memo

As a new employee at Canyon rental, an outdooroutfitters and supply shop, your boss has asked you to look at the internalcontrol system within the store. He is seeking a loan for expansion and must havehis books audited. The auditor asked about his control procedures anddocumentation. He has no idea what the auditor is talking about. Your boss hasasked you to do what you need to understand the system and has asked for a memowith your observations and recommendations by the end of the week. Throughinterviews and observation you notice the following:

1. Purchase orders, andsales invoices are not pre-numbered due to the higher cost of printing theforms.

2. To save time the salesclerk enters the sales at the end of the day into the accounting records,prepares the deposit and delivers it to the bank.

3. The sales clerk atrusted and long-term employee grants sales returns at her discretion.

4. The purchasing managerboth orders merchandise and approves the payment for the order.

5. Betty Gamble, thebookkeeper has not taken a vacation in three years.

6. Checks are brought tothe owner twice a week for signing. He is overwhelmed by all of the paperworkand has asked for the checks only on which he stamps his signature.

In your memo, give a summary of the elementsof an effective internal control system. Comment on each of your observationsand if there is a weakness provide a solution. Your memo should be 2-3 pages.