Xavier University

Ateneo de Cagayan
Cagayan de Oro City, Philippines

CHAPTER 13: OVERVIEW OF INTERNAL CONTROL

EXERCISE 3

Passed by:
Balindong, Jafarien P.
Baylin, Reynalyn
Gillado, Justin Mae
Guiling, Anna Azriffah Janary S.
Neri, Emmanuel
Sabuero, Vincent Dean
Sidic, Mohammad Aslam D.
Yana, John

Passed to:
Atty. Rosalie Grace Escobia, CPA

September 26, 2019

II – BS ACCOUNTANCY (ACC)
EXERCISE 3

A. What internal controls has the criteria instituted for its operations?

1. Strengthening control environment

In the cafeteria, it can be seen that the adding operator machine is different
to that of the cash register. This is one internal control being used by the
business in order to have a proper segregation of duties. By doing this,
personnel and employees are given a clear understanding of their
responsibilities, the scope of their workload, and the rules and regulations
that govern their actions. By separating the payment process and the
summing up of the total purchases, a clear swift and more organized
process that benefit both the business and the customers is evident.

2. Addressing Risks concerning the business

The business is being responsible in doing its part in trying to prevent risks
before they actually happen. In order to avoid the possibility of unrecorded
transactions or errors on significant estimates recorded by the business to
be presented in financial statements, the business implemented an internal
control in the way of the adding machine operator. Through this, there is a
less chance of making errors due to properly segregated duties. The adding
machine is able to focus on recording and totaling purchases alone while
the cashier is also focused on accepting payments.

3. Organized and More Reliable Information System

The business also implemented an internal control that would initiate,
record, process, and report entity transactions in order to resolve incorrect
processing of the transactions.

 Looking at the cafeteria, it is part of their business measures to ask

the number of members dining in. This is maybe for various reasons
and purposes which might include the use of information for future
reference of customers and sales. By doing the “stapling technique”,
the business makes sure that they do not double-count their
customers which maintains the avoidance of overestimation of the
customers.
 Through the creation of the adding machine operator, the business
also develops and distributes the entity’s products and services, and
they will be able to record information.

B. How can the manager of the Cafeteria evaluate the effectiveness of the
controls?
  The effectiveness of the controls can be evaluated by cross-referencing the tapes
on the spindle with the number of receipts of the adding machine.

 This makes sure that the operation of adding purchases would only be
handled by the operator as manipulating the internal control system can be
tedious and the only way that would be accurate is that the operator was
present and have not been interfered with.

 By stapling together all the tapes of a single customer, possible signs of

manipulations can be foreseen if a certain individual decides to over-
purchase.
 In case of computer systems problem, the manager can instill its control over the
sales by checking the tapes spindle. Also, it can give more transparency to the
customers as well as the cashier whenever clarifications are needed.

C. How do these controls differ from those used by most cafeterias?

1. Use of adding machines – An adding machine is a class of mechanical calculator used

for bookkeeping purposes. Most cafeterias or fast food restaurants usually make use of
a calculator that we know today or even computers to record transactions. Though an
adding machine is a calculator of sorts, what makes it different is that it automatically
prints out a tape or receipt indicating what you just calculated, whereas a calculator
displays calculated information only its screen. The fact that this tool is used can imply
that the said cafeteria is utilizing or making the best of an old tool to record their
transactions despite the many technological advances today.

2. Eat before paying – Most eating places require their customers to pay before eating to
ensure sales, however, the cafeteria in the illustration requires their customers to finish
the meal first and then pay. Perhaps, this is their practice so they can accumulate all the
customers’ orders so they can pay just once when they’re done eating.

3. Asking how many members will eat – Cafeterias usually don’t ask their customers how
many they are unless it’s a restaurant where they ask you the number of company you
have so they can get you a table corresponding to the number of people. Cafeterias don’t
really take into account this information, they just figure out or presume the number of
people depending on the orders.

4. Separation of cash register operator and adding machine operator – When you visit an
eating place, you actually pay for your food at a single station, like the cash register area.
You get your food served, they calculate it then issue you a receipt. But, this particular
cafeteria has a separate operator for where you get your orders calculated and where
you pay for it after eating. This reflects a more organized process and also lets the
operator to focus on a single job but it is time-consuming on the customers’ part since
they will have to fall on line twice: for ordering and paying.
5. Keeps receipt/tape – Customers usually get to keep their receipts and the eating
establishments get to keep a copy of the receipts for themselves as well, some may not
even issue receipts at all. But in the illustration, when the customers present their tape or
receipt to the cash register operator, the operator retrieves the receipts and keep it in a
swindle. This may be for recording purposes or serving as evidence on transactions.

D. What are the costs and benefits of the cafeteria’s system?

The main cost of the cafeteria's system is that there is a risk that customers might run
away. Since the system allows customers to eat now and pay later, there might be cases
wherein customers will leave the store premise and avoid paying. If customers also
constantly order, there is a chance that one of the papers will fall from the stapled orders
and this will also result to a loss in the company's side. Although somewhat immaterial,
the system is costly because of the paper and ink used when there are separate orders
from the same customers.

This type of system reduced the chances of sales manipulation. Since each order will
produce a reference copy for the customer(probably to the seller too), this will prevent
understatement of sales caused by theft from employees.