Question

Whole Fruits Market took the following actions to improve internal controls. For each of the following actions, identify the internal control principle the company followed.

1)The recordkeeper is not permitted to pay the company's suppliers.
-Separate recordkeeping from custody of assets
2)Personal ID cards are used to limit access to only authorized employees.
-Apply technological controls
3)Employees requesting purchases of inventory cannot approve payment for that inventory.
-Divide responsibility for related transactions
4)Each cashier is designated a specific cash drawer and is solely responsible for cash in that drawer.
-Establish responsibilities
5)Purchased an insurance (bonding) policy against losses from theft by a cashier.
-Insure assets and bond key employees
6)External auditors are regularly hired to evaluate internal controls.
-Perform regular and independent reviews

Answer 1

Whole Fruits Market followed several internal control principles to improve their control system, including separating recordkeeping from custody of assets, applying technological controls, dividing responsibility for related transactions, establishing responsibilities, insuring assets and bonding key employees, and performing regular and independent reviews.

Step-by-step explanation:

1) The internal control principle followed in this action is to separate recordkeeping from custody of assets. By not permitting the recordkeeper to pay the company's suppliers, the company ensures that there is a clear division of duties between those who record transactions and those who have physical control over the company's assets.

2) The internal control principle followed in this action is to apply technological controls. By using personal ID cards to limit access to only authorized employees, the company ensures that only those with the proper identification can gain access to certain areas or information.

3) The internal control principle followed in this action is to divide responsibility for related transactions. By not allowing employees who request purchases to approve payment for those purchases, the company ensures that there is a separation of duties and reduces the risk of fraudulent activity.

4) The internal control principle followed in this action is to establish responsibilities. By designating each cashier a specific cash drawer and making them solely responsible for cash in that drawer, the company can easily identify who is accountable for any discrepancies.

5) The internal control principle followed in this action is to insure assets and bond key employees. By purchasing an insurance (bonding) policy against theft by a cashier, the company protects itself from financial losses.

6) The internal control principle followed in this action is to perform regular and independent reviews. Hiring external auditors at regular intervals to evaluate internal controls ensures that the company's controls are effective and in compliance with regulations.

Answer 2

When accused of theft as a cashier, an employee can refer to internal controls such as establishing responsibilities, separating recordkeeping from custody of assets, insuring assets and bonding employees, and requesting regular independent reviews to resolve the situation and potentially prove innocence.

Step-by-step explanation:

The question posits a scenario in which a cashier at a retail store is accused of theft due to discrepancies in their cash drawer. To address this situation effectively, the principles of internal control should be applied to ensure fairness and accuracy in the investigation. It is essential for the employee to refer to the internal controls the company has in place, specifically:

• Establish responsibilities: The employee can point out that they have been assigned a specific cash drawer, and therefore, any shortages should be accounted for by their actions alone, but this also implies that they should have exclusive access to the drawer, ensuring no one else could have tampered with the money.
• Separate recordkeeping from custody of assets: If someone else has the ability to modify the records without proper checks, the employee can suggest reviewing those records to ensure that any transactions have been recorded accurately.
• Insure assets and bond key employees: The employee can ask if the store has insurance policies or bonding against losses, which could provide a safety net against theft occurrences and may include an investigation that could prove their innocence.
• Perform regular and independent reviews: The employee can request an independent audit of the cash handling process to ensure that any systemic issues leading to cash shortages are identified, which would demonstrate the employee's willingness to clear their name through an objective process.

Facing such an accusation, the employee should remain calm, compliant with the internal investigation, and insist on a detailed examination of the circumstances that led to the accusation, which may include error, misunderstanding, or actual theft by another party.