WALKER BOOKS INC.

Prepared by:
Barcelon, Roselle
Chavez, Melissa Grace
Manaois, Jonah M.
Reyes, Anne Clarisse

Case Background

Walker Books, Inc., is the fastest-growing book distributor in the United

States. Established in 1981 in Palo Alto, California, Walker Books was
originally a side project of founder and current president Curtis Walker, who
at the time was employed by a local law firm.

He then decided to use some of his savings to buy an abandoned restaurant

and convert it into a neighbourhood bookstore, mainly selling used books that
were donated and obtained from flea markets.

When the store first opened, Mr. Walkers wife, Lauren, was the only
employee during the week and Curtis worked weekends. At the end of the
first fiscal year, Walker Books had grossed $20,000 in sales. After some time,
he then quit his job at the law firm to fully concentrate on operating the
bookstore.

More employees were hired, more books were traded in, and more sales were
attained each year that passed.

In 1995, Walkers sales started to decline because of increased competition

which are large upscale bookstores being built in the area and because of the
use of the Internet for finding and ordering books which was\\as becoming
cheaper and more popular for current customers.

Deciding to take a risk because of the newfound competition, he closed his

doors to the neighborhood, invested more money to expand the current
property, and transformed his company from simply selling used books to
being a distributor of new books.

His business model was to obtain books from publishers at a discount, store
them in his warehouse, and resell them to large bookstore chains.

Walker Books, Inc., has rapidly become one of the largest book distributors in
the country.

Although they are still at their original location in Palo Alto, California, they
distribute books to all 50 states and because of that, the company now sees
gross sales of about $105,000,000 per year

Statement of the Problem

The main problem that Walker Books Inc. is currently facing are poor
inventory management, troublesome disbursements and lack of legitimate
documentation of transactions.

Alternative Courses of Action to address

the problem:
a.) SUPERVISION

Walker company must have an authorize person, known as the checker to

assist the checking and the flow of inventories in the warehouse.

They must implement a controller department.

The cash receipts department typically reports to the treasurer who has
responsibility for financial assets.

Since the company encounters delivery delays, they must have a carrier
department so that inventories will be turned over to customers or to other
branches as fast as possible to prevent inventory stock outs.

b.) SEGREGATION OF DUTIES

Walker Company must have tasks dispersed to different departments.

In order to maximize time and maximize the order sales, Walker Company
must be able to see that different departments are assigned with their
specific tasks.

c.) ACCESS CONTROL

Walker Company's computer department must see to it the importance of

providing more computer units.

The organization management must implement controls that restrict

unauthorized access.

Since the company relies only to a stand alone work station and it has no
physical source documents for back-up, the destruction of files can leave
Walker Company with inadequate inventory record.

d.) INVENTORY RECORDS

Walker Company's sales department must always maintain file back-ups to

prevent loss of sales records since they only have a stand alone PC work
station.

Walker company must be able to purchase more computers for fast and more
reliable documents for their sale inputs to prevent manual procedures since
manual procedures may result to communication logs to employees or logs on
transmitting order to purchasing department.

Recommendation
The

company would benefit greatly by improving oncertain aspects of

its internal control.

There

is anoverall weakness in checks and balances largely due to the

failure of forwarding the proper documents to the respective
department for reconciliation purposes.

This

problem needs to be addressed by ensuring that source documents

are directed to the proper departments so that all transactions are
accounted for andverified.

Segregating

AP and disbursement duties and strengthening independent

verification will also help in thereconciliation of accounting records.

Improvements

in authorizing purchasing transactions and supervising

the receipt of goods are sought to regulate the inflow of inventory
tothe company.

Recommendation
Accounting documentation and records
Condition:

Voucher and supporting documents are not given to the Cash Disbursement
department for check approval; no official list ofqualified vendors/suppliers
is maintained

Risk:

Payment for unauthorized purchases might occur

Recommendation:

Provide sufficient supporting documents to evidence that the disbursement to

be made is legitimate to a known and existing supplier

Recommendation
Segregation of duties
Condition:

Accounts Payable clerk prepares checks for disbursements

Risk:

AP clerk maymisappropriate company funds and disguise the fraud by

adjusting theAP books

Recommendation:

Separate the functions ofthe Accounts Payable from Cash

Disbursements

Recommendation
Independent verification
Condition:

Receiving department does not send a copy of the receiving report to

the Accounts Payable department

Risk:

Recorded obligations to suppliers might not have a legitimate basis

(e.g. no physical receipt of goods)

Recommendation:

Have the receiving department forward a copy of the receiving report

to the AP department for reconciliation purposes.

Recommendation
Supervision
Condition:

Goods that arrive are not manually inspected and reconciled with the blind
copy of the PO

Risk:

Amount and condition ofgoods received may not be the same as that which
was ordered

Recommendation:

Separate the functions ofthe Accounts Payable from Cash Disbursements

Recommendation
Accounting documentation and records
Condition:

Invoices received are discarded after writing the check

Voucher and supporting documents are not given to the Cash Disbursement department
for check approval; no official list ofqualified vendors/suppliers is maintained

Risk:

Lack of audit trail

Payment for unauthorized purchases might occur

Recommendation:

Maintain a file of received invoices for record-keeping purposes

Provide sufficient supporting documents to evidence that the disbursement to be made

is legitimate to a known and existing supplier

Recommendation
Transaction authorization
Condition:

Purchasing agent has complete autonomy over the purchasing decisions of

the company

Risk:

May result inexcessive inventory levels

Recommendation:

Implement a system ofpurchase order authorization