Chandni & Co. opened their first restaurant location in 2012 in Lahore. The restaurant has since expanded its operation and at the end year end December 2020 they operate a total of six restaurants around Lahore which are open seven days a week. All the restaurants have the option buffet or A la carte dining.

You are the audit supervisor reviewing the documentation of the internal control in relation to the cash receipts and payments system in preparation for the interim audit, which will involve visiting all of the locations as well as the head office. The company has a small internal audit (IA) department based at the head office.

Each location has five cash registers to take payments from customers. Three are in buffet dining area and two in the A la carte dining area of the restaurant. Customers can pay using either cash or a credit card and for any transaction either the credit card vouchers, or cash are placed in the register by the employee operating the register.

To speed up the payment process, each location has a specific log on code which can be used to access all five cash registers and is changed every two weeks.

At each location at the end of the day, the cash registers are closed by the restaurant manager who counts the total cash in all five cash registers and the sum of the credit card vouchers and these totals are reconciled with the aggregated daily readings of sales taken from each cash register.

Any discrepancies are noted on the daily sales sheet. The daily sales sheet records the sales per the cash registers, the cash counted and the total credit card vouchers as well as any discrepancies. These sheets are scanned and emailed to the cashier at head office at the end of each week.

The purchasing department based at the company’s head office is responsible for ordering food and beverages for all six locations. All purchases of food and beverages for the locations are paid by bank transfer. At the relevant payment dates, the finance director is given the total amount of the payments list which he authorizes.

In addition, each location has a petty cash of Rs 100,000, held in the safe, which is used for the purchase of sundry items. When making purchases of sundry items, employees are required to obtain the funds from the restaurant manager, purchase the items and return any excess money and the receipt to the manager. At any time, the petty cash sum held, and receipts should equal the float of Rs 100,000/- but it has been noted by the company’s Internal Audit department that on some occasions this has not been the case.

Approximately 60% of the customers pay in cash for their restaurant bills. Cash is stored in the safe at each location daily after the sales reconciliation has been undertaken. Each safe is accessed via a key which the restaurant manager has responsibility for. Each key is stored in a drawer of the manager’s desk when not being used. Cash is transferred to the bank via daily collection by a security company. The security company provides a receipt for the sums collected, and these receipts are immediately forwarded to head office.

The credit card company remits the amounts due directly into Chandni & Co.’s bank account within two days of the transaction. At head office, on receipt of the daily sales sheets and security company receipts, the cashier agrees the cash transferred by the security company has been banked for all locations. The cashier agrees the cash per the daily sales sheets to bank deposit slips and to the bank statements. The cashier updates the cash book with the cash banked and details of the credit card vouchers from the daily sales sheets. On a monthly basis, the credit card company sends a statement of all credit card receipts from the six locations which is filed by the cashier.

Every two months, the cashier reconciles the bank statements to the cash book. The reconciliations are reviewed by the financial controller who evidences her review by signature, and these are filed in the accounts department.

Required

Identify seven (7) control deficiencies and explain the impact of the deficiency in Chandni’s cash receipts and payments system
Provide a recommendation to address each of the deficiency
Design an appropriate test of the recommended control.
Explain hard and soft controls and how would you test soft controls?

Answer rating: 100% (QA)

a Strict internal controls are key to managing receipts and in the Chandni copayment system creates a strong company code of conduct that emphasizes ethics and strong adherence to reducing employee th... View the full answer