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4-18. Fairfax Recreation Center ( Internal Control Recommendations to Improve System)

The Fairfax Recreation Center is a neighborhood fitness center equipment with an indoor swimming pool, exercise equipment, and a running track. The Center is open seven days a week, from 8.00 a.m to 10.00 p.m. Stationed just inside the front doors is a turnstile. An employee oversees access through the turnstile. Before anyone can enter the facility, they must either present their membership card or pay a $6 daily fee. When the employee at the turnstile collects cash for daily fees, he or she also has the visitor complete a waiver form. The employee then deposits the cash in a locked box and files the forms. At the end of each day the Recreation Center accountant collects the cash box, open it, removes the cash and counts it. The accountant then gives a receipt for the cash amount to the employee on turnstile duty. The accountant takes the cash to the bank each evening. The next morning, the accountant make an entry in the cash receipt journal for the amount indicated on the bank deposit slip. Susan Porcano, the Fairfax Recreation Center general manager, has some concerns about the internal controls over cash. Aware that the cost of additional controls may outweigh benefits, Susan decides to ask the organizations outside auditor to review the internal control procedures and to make suggestions for improvement Requirements: Assume that you are the outside auditor. Indicate weaknesses in the existing internal control system over cash admission fees and recommend one improvement for each weakness identified. Organize your answers as follows:

Weaknesses

Recommended improvement

PROCESS To control the number of customers

WEAKNESSES For customers with membership cards: the employee do not check the time in card. The customers with expired cards can blend. Validation form for the retail customer is so sketchy and hard to control, that the employee can cheat easily

RESOLUTION Monitoring department sent staff members to check the customer's card when they present cards

The validation form must be confirmed date, numbered, and have 2 copies, one kept at the original for comparison, one for customers to get in. (Appendix 01) Cash drawer should has many cells, each cell is filled with a different kind of money, and is locked with password protection (has a regulation of who know the password).

Collecting fees and managing customers s information

Upon receipt of fees from customers, the employee dont classify the kind of money so that it's easy to confuse and difficult to detect money not qualified

for using. Storing customers information is so weak.

Managing the information of the members and visitors should be stored by computer.

The center do not define the max and minimum cash in cashier room. So it's difficulties when making payments to customers and inventory of the accountant at the end of a day.

Defining the max and minimum cash in cashier room and accounting department (the cash at the end of each shift, in cashier room is 5% of revenue per day, and 10% of revenue per day at accounting department).

In cashier room, there should be a camera in cashier room, and the camera is always on.

There is only one cashier so its difficult to control amount of revenue and Cash inventory expenditure. Its difficult to check for

Having at least 2 cashier with clear background, good health, no criminal record,

There should be two employees each shift, the

comparison between the cashier and accountant, because the only one in end of the day was due to the inventory of the accountant

end of each work shift the employee inventory cash in the form attached, night shift cashier are tasked aggregate the inventory at the end of the day. (Appendix 02) Inventory the cash at end of day must be witnessed by at least 3 people, inventory records must include the full signature of the accountant, cashier, security guard at the cashier and witnesses.

Make provisions of handling the cases of cash missed, in excess, torn damaged and define responsibilities for each involved individual. (Appendix 03)

There is no extraordinary inspection of the monitoring department => there is embezzlement of money and collusion between the accountant and

There should be the unexpected inspection, 3 times a month and regulations of the inspection component.

Operation hours

cashier. Operation hours is up too late (to 10:30 pm) so that it's easy to be robbed and lost money. There is no regulations about the time when the accountant deposits money to bank.

The Centre should provide

the operation hours, from 8:00 am to 8:30 pm and the time depositing money to bank is 7:30 pm

Cashier stop collect a fee,

then only those who are members of the center can entrance.

Appendix 01
CUSTOMERS INFORMATION SHEET No :.. At:
Full name:. Male Female Date of birth:..Place of birth Permanent address:.. Contacts :................ ID/Passport No:. date at. Phone number:.....................Email: Contents :................... I hereby declare all information is correct. If theres anything wrong, I will take full responsibility. Date././. (Customer signature)

Appendix 02 INVENTORY RECORD

No: Today, time:,date ../../ We are : Mr./Ms.is chief accountant Mr./Ms.is cashier Mr./Ms.is .. The result of the inventory : Interpretation A I II 1 2 3 4 5 B Balance in cash book Balance in fund Kind of money Kind of money Kind of money Kind of money TOTAL III Difference (III = I-II) Quantity 1 x x . . . . . .. x Amount 2 . . . . . . . x

Reason : + missing + Excess.

Conclusions Chief accountant (signature) Cashier (signature) Responsible for inventory (signature)

Appendix 03

Provisions of handling the cases of cash missed, in excess, torn damaged: When the cash is missing or in excess Find out the reason and define the resolutions. If the reason cant be found, the cashier must inform the chief accountant. The chief accountant will decide resolutions (compensate or return the money to fund).

In case of torn or damaged: sort then bring to the bank to change. That will cost a fee. The cashier and accountant must pay 50% of that fee. The rest is the centers expenditure.

We have a data flow diagrams of internal control about cash admission fees, Please reference:

CASHIER 1

COLLECTING MONEY

COLLECTING MONEY

CASHIER 2

ISSUE WAIVER FORM

ISSUE WAIVER FORM

KEEPING IN GUARDED BOX

KEEPING IN GUARDED BOX

CHECKIN G MONEY

CHECKIN G MONEY

INVENTORY RECORD (1) INVENTORY RECORD (2)

CHECKIN G MONEY

ACCOUNTANT AND INSPECTOR

DEPOSIT IN BANK

RECORD