Jittery Joe has recently been hired as the manager of Loyola’s Coffee, a national chain of franchised coffee shops. During his first month as store manager, Jittery encountered the following internal control situations:
1. Loyola's Coffee has one cash register. Prior to Jittery joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jittery made one employee on each shift responsible for taking orders and accepting the customer's payment. Other employees prepare the orders.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Agree.
2. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jittery expects each cashier to balance the drawer to the penny every time—no exceptions.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Disagree.
3. Jittery caught an employee putting a case of single-serving tea bags in her car. Not wanting to create a scene, Jittery smiled and said, “I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop?” The employee returned the tea bags to the stockroom.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Disagree.
Let's evaluate Jittery Joe's methods of handling each internal control situation.
Segregation of Duties with Cash Register: Agree. Jittery's method of having one employee handle customer orders and payments while other employees prepare the orders enhances internal control by segregating duties. This reduces the risk of errors and fraud because it requires collusion between employees to manipulate sales and cash receipts. Segregation of duties is a key principle of internal control to prevent misappropriation of assets and ensure accuracy in financial reporting.
Cash Register Balancing: Disagree. While it is important for the cashier to count the cash and verify it against the sales recorded, requiring the cashier to balance to the penny every time without exceptions is unrealistic and can cause undue stress. Minor discrepancies can occur due to human error or other minor issues. Instead, it would be better to have a system where discrepancies within a small, reasonable range are investigated and documented. Implementing periodic surprise audits and having a second person verify the cash count at the end of the shift can also strengthen internal controls.
Overall, internal control is about establishing procedures that prevent and detect errors or fraud, ensure accurate financial reporting, and promote operational efficiency.
1. Loyola's Coffee has one cash register. Prior to Jittery joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jittery made one employee on each shift responsible for taking orders and accepting the customer's payment. Other employees prepare the orders.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Agree.
2. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jittery expects each cashier to balance the drawer to the penny every time—no exceptions.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Disagree.
3. Jittery caught an employee putting a case of single-serving tea bags in her car. Not wanting to create a scene, Jittery smiled and said, “I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop?” The employee returned the tea bags to the stockroom.
State whether you agree or disagree with Jittery's method of handling the situation?
Ans: Disagree.
Expert Explanation
Segregation of Duties with Cash Register: Agree. Jittery's method of having one employee handle customer orders and payments while other employees prepare the orders enhances internal control by segregating duties. This reduces the risk of errors and fraud because it requires collusion between employees to manipulate sales and cash receipts. Segregation of duties is a key principle of internal control to prevent misappropriation of assets and ensure accuracy in financial reporting.
Cash Register Balancing: Disagree. While it is important for the cashier to count the cash and verify it against the sales recorded, requiring the cashier to balance to the penny every time without exceptions is unrealistic and can cause undue stress. Minor discrepancies can occur due to human error or other minor issues. Instead, it would be better to have a system where discrepancies within a small, reasonable range are investigated and documented. Implementing periodic surprise audits and having a second person verify the cash count at the end of the shift can also strengthen internal controls.
Handling Employee Theft: Disagree. Jittery's response to catching the employee taking tea bags was too lenient and did not address the seriousness of the situation. Internal controls should include clear policies on handling theft or misconduct, which should be enforced consistently. In this case, Jittery should have followed the company’s disciplinary procedures, which might include a formal warning, documentation of the incident, or even termination depending on company policy. This ensures that employees understand the consequences of theft and that such behavior is not tolerated.
Overall, internal control is about establishing procedures that prevent and detect errors or fraud, ensure accurate financial reporting, and promote operational efficiency.
