You are the owner of a golf course, Whispering Oak. The company has been in operations for

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Question:

You are the owner of a golf course, Whispering Oak. The company has been in operations for 10 years and has done well… very well. So well in fact that you were able to hire a General Manager last year, Slim Shady, to look after the day to day running of the business while you relax on a beach in Hawaii. You are lucky to have him.

Over the last year and a half he has never taken a holiday, let alone a sick day! He is dedicated to the business. He also appears to be very good with his money, so you are confident that he will be equally good with the finances of the golf course. He recently purchased a posh 2,000 square foot condo in the most exclusive area of town. He drives a new Mercedes SUV, has the best clothes and even has a new Rolex watch! The staff and members love him. You are impressed with this 25 year old. To make life easier for Slim Shady, you created some authority and duties for him. Selected Information from Whispering Oak General Manager duties is below: General Manager will have: • Sole authority to hire and fire staff as appropriate

• To streamline the administration process, the GM has sole authority to order, receive and pay for all golf course inventory and merchandise,

• To streamline the administration process, the GM has sole authority to add and remove vendors

• To streamline the administration process, the GM has sole authority to complete the bank reconciliations and make bank deposits. Most of the company sales are in cash.

• Signing authority on company cheques. Only one signature is required on cheques. Your accountant has called you wanting to discuss the draft financial statements for the year just ended, which is not normal. There was also a problem with a routine audit conducted by the Canada Revenue Agency.

A new supplier gave the golf course their wrong Business number and address – the business number doesn’t exist and the address can’t be found! This is odd as the golf course has done lots of business with the supplier in the last year. Required:

1. The Income Statement and Balance Sheet for Whispering Oak is found on the following pages, along with some industry averages. Select 4 of the ratio’s listed and tell me: a. how the ratio is calculated b. what the ratio tells us (what the number means) c. how you would use the ratio to form an opinion on the company

2. Calculate 4 (or more) ratio’s for each year (2020 and 2019) and do a quick horizontal analysis. Show your work

3. Using the ratio analysis, horizontal analysis, and case facts from the question, discuss if you believe there is an issue with the new General Manager and what the issue could be. How could the owner correct the internal control issue? (As strong answer will tie in case facts with financial results explaining how the results could be a sign of a problem in the company – hint, do you suspect possible fraud? Answers should incorporate both vertical and horizontal analysis, with the majority being vertical analysis)