Question

Review the opening feature of this chapter that highlights Vlad Tenev and Baiju Bhatt and their company Robinhood. Their company plans to open a kiosk in the Ferry Building in San Francisco to sell Robinhood shirts, hats, and other merchandise. Other retail outlets and expansion plans may be in the works.

Required

1. List the seven principles of internal control and explain how a retail outlet might implement each of the principles in its store.

Short answer

Answer

Establish obligations, maintain adequate records, ensure assets and bond key employees, separate record-keeping from authority of assets, divide obligation for related transactions, apply technological controls, and perform regular and independent surveys.

Step-by-step solution

Step-by-Step SolutionStep 1: Introduction to topic

Internal Control: Internal control is the rules or a process that are affected by management and other employees of the organization to safeguard assets, increase efficiency and reliable financial reporting.

Seven principles of internal control along with instance are:

a.Establish obligations: The clerks at the counter ought to be liable for handling cash. The other employees should be liable for preparing the orders and helping customers. There also ought to be employees assigned responsibilities such as maintaining inventories, cleaning premises, clerical obligations, locking doors, etc.

b. Maintain adequate records: The clerks at the counter ought to enter all sales on the cash registers. The cash registers should incorporate a locked record of all sales rung up for subsequent verification procedures. Other records ought to incorporate those for inventories, supplies, payroll time records, etc.

c. Ensure assets and bond key employees: The owner should acquire insurance for the employees and the physical facilities. Insurance also is acquired for potential casualties, such as a client slipping on the floor.

d. Separate record-keeping from the authority of assets: The employee liable for food preparation and inventory should not be in control of the record-keeping for the inventory. Similar separation should exist for all important assets.

e. Divide obligation for related transactions: The employee liable for ordering inventory should be separate from the employee controlling stock, who should also be separate from the employee who pays for stock.

f. Apply technological controls: The owner should invest in technological control to decrease the risk of fraud or theft, like security cameras, time clocks, etc.

g. Perform regular and independent surveys: The owner should implement regular reviews of all operating and control systems.