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Tyler Kirsch has recently been hired as the manager of Dark Canyon Coffee. Dark Canyon Coffee is a national chain of franchised coffee shops. During his first month as store manager, Tyler encountered the following internal control situations: a. Dark Canyon Coffee has one cash register. Prior to Tyler's joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Tyler made one employee on each shift responsible for taking orders and accepting the customer's payment. Other employees prepare the orders. b. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Tyler expects each cashier to balance the drawer to the penny every time-no exceptions. c. Tyler caught an employee putting a box of 100 single-serving tea bags in his car. Not wanting to create a scene, Tyler smiled and said, "I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop?" The employee returned the tea bags to the stockroom. State whether you agree or disagree with Tyler's method of handling each situation and explain your answer.

Step by step solution

01

Evaluate Cash Register Control

Tyler changed the process so that one employee is responsible for taking orders and accepting payments, while other employees prepare the orders. This is a form of internal control called segregation of duties, which helps prevent fraud and errors. Having separate roles reduces the risk that an employee could both steal cash and alter the records to cover the theft. This approach is generally a good practice in retail operations; therefore, I agree with this method.

02

Cash Drawer Reconciliation Policy

Since only one employee handles the cash register, they are also responsible for counting the cash and ensuring it matches the sales record at the end of their shift. This step is crucial to detect discrepancies early and can prevent financial losses. By expecting the cashier to balance the drawer exactly, Tyler is installing a control measure that minimizes cash-handling issues. Thus, I agree with this policy.

03

Handling Employee Theft

When Tyler caught an employee attempting to remove a box of tea bags, he opted for a non-confrontational approach by subtly indicating that the tea bags should stay in the stockroom. While avoiding conflict may have seemed like a good strategy, this approach does not effectively address the problem of potential theft. Tyler should have taken the situation more seriously, possibly by having a private conversation with the employee about company policies and consequences. Therefore, I disagree with Tyler's handling of this situation.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Cash Register Management

Cash register management is critical in any retail operation, ensuring that financial transactions are handled smoothly and accurately. In the scenario with Dark Canyon Coffee, Tyler implemented a change where one employee is solely responsible for taking orders and accepting payments. This adjustment helps organize and streamline the checkout process.
With a single employee managing the cash register, there is greater accuracy in recording sales transactions. It also means that there is a clear point of accountability in case of errors or discrepancies.

• Simplified cash flow tracking
• Reduction in transaction errors
• Establishes clear accountability

Moreover, it complements the principles of segregation of duties, minimizing opportunities for fraud as no single employee handles both cash and records together.
Regular cash register management also involves periodic audits and reconciliations. This ensures that any disparities are detected early and promptly corrected. It fosters a sense of duty and responsibility among employees tasked with cash handling.

Segregation of Duties

Segregation of duties (SoD) is a fundamental concept in internal control aimed at preventing errors and fraud by distributing responsibilities among multiple employees. At Dark Canyon Coffee, Tyler's decision to separate the duties of taking orders and preparing them among different employees is a classic example.
This segregation helps mitigate risks by ensuring that no single employee has control over all aspects of a transaction. By having one person handle payments while others prepare the orders, the chance of collusion is reduced.
The benefits of implementing segregation of duties include:

• Enhanced error reduction: Errors become easier to spot and correct because duties are divided.
• Fraud prevention: With no employee having unfettered access, fraudulent activities like adjusting cash records become harder.
• Increased operational efficiency: Employees can specialize and become more efficient in their specific tasks.

Segregating duties also builds trust, as employees understand the controls in place support fairness and integrity in operations.

Employee Theft Prevention

Preventing employee theft is a critical issue and requires direct and effective measures. When Tyler encountered a situation of potential theft with an employee attempting to take tea bags, the situation highlighted how crucial active prevention strategies are.
A proactive approach involves not only having clear policies and consequences defined but also ensuring that employees are well aware of them. This is where effective communication and training come in.

• Regular training sessions: Keep employees informed about the rules and potential consequences of theft.
• Implementing surveillance: Cameras and other monitoring systems can act as deterrents to theft.
• Encouraging a whistleblower policy: Foster an environment where employees feel comfortable reporting suspicious activities.

In addition, it is essential to address any incidents of attempted theft firmly and directly. This helps in reinforcing the importance of honesty and integrity among the workforce. It signals that theft is not tolerated and builds a culture of transparency and responsibility.