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Content Preview
POPULAR
Company's Background
Popular Holdings, commonly called Popular, is a Singapore-based company that publishes,
distributes, and retails books for the local education market. The first Popular Bookstore was set
up in 1936 by Chou Sing Chu in North Bridge Road.

The Popular that we went to observe and review the internal control is at Serangoon Nex and
Clementi Mall.

Understanding the system
Roles
Responsibilities
Objectives and Tasks
Store Manager
1. Store manager takes care of the overall store.
To maintain the store

standards at high level
2. Reports back to Popular Headquarters for the
store's performance and activities.

Department
1. In-Charge of their respective department
To increase sales for
Manager

their respective
(Store,
2. Authorises price list, ordering of goods and
departments.
Stationery,
placement of goods.
English

department,
3. Accounts for the ending cash amount in the
Chinese
cash register with the cash rolls at the end of
department,
each day.
CD-Rama)

Sales Assistant
1. Look-out for the goods in the store
To increase sales for

their respective
2. Display of goods and prices on items
departments.

3. Receiving of goods

Cashier
1. Collect cash from customers
To ensure cash receive is

the correct amount.
2. Accounts for the ending cash amount in the

cash register with cash rolls at the end of each

day.

Warehouse
1. Receiving of goods
To safeguard the stocks
Packer

and account for the
2. Packing goods in the warehouse
quality and quantity of

stocks.
Administration
1. Recording of the daily performance of each
Ensure recording is
Staff
departments
taken timely, accurately


and completely.
2. Recording on the number of stocks in the store


Sales Cycle
This is the sales cycle of popular for every order that is received. Popular only transacts in cash sales.
Firstly, goods are being ordered/chosen by the customer.
Then, they would proceed to the cashier counter for payment of goods by cash, debit card or credit
card.
Next, the cashier would record it in the cash register and also print receipts for the customer as well
as receipt to collect debts from credit card Company owed by the customer.
Receive
Order
Record
Bill
AR
Customer


Organisational Structure
This organisational structure only applies to the store and not to the headquarters.
Since the company is small, there is only less than 30 workers per day in the store. Hence the
organisational structure has very few positions and very few layers.
Store Manager
Department
Manager
Warehouse
Administration
Cashier
Sales Assistant
Packer
Staff









Concerns (Owners' Perspective)
1. Profits and Cash flow
From the owner's perspective, the owner would be very concern about the profits earned
from the sales of the goods. They would be concerned to raise profits and minimise losses by
implementing marketing strategies.

2. Internal Controls
To minimise losses, the owner would be very concerned as to whether the internal controls
are in place.
The owner would be concerned on the physical control over the goods to prevent theft from
both employees and customers.
The owner would also be concerned about the cash in the cash register as they may be
afraid the employee may misappropriate the cash.
The owner may be concerned about the approval of goods ordered and whether the
quantity of goods is the right amount delivered and pricing are correctly charged.
The owner would be concerned as to whether the prices are stated correctly in the
computer price list as well as on display.
The owner would be concerned if customers were taking goods without paying for it but
claims that they paid for it.
Whether every sales transaction is recorded timely into the system by the administration
staff.
The owner would be concerned about the errors made by employees which might affect the
business operations.
The owner is concerned about thefts occurring due to blind spots in the store, items that are
easily stolen due to lack of security systems.



Existing Control Activities

Segregation of Duties
Existing Internal
control procedures

Different roles have different responsibilities in Popular and are independent from

each other.

The cashier collects cash from customer and at the end of the shift, counts the cash
with reference to the amount shown in the cash register. Then he would pass it over to

the next cashier of the next shift to count the cash so as to check again for the right

amount of cash. At the end of the day, the cash is then passed to the store manager to
be kept in a safe deposit box for safekeeping.

The administration staff would then record the sales in the computer.

Warehouse packer in charge of taking care of the stocks in the warehouse whereas

sales assistant is in charge or displaying out the goods.


Audit Objectives
Existence


Potential
The potential misstatement if there is no segregation of duties would be that there
Misstatement
would be higher risk of fraud. E.g. If the cashier had both reponsibility to record and

collect cash, the cashier could deliberately record fictitious sales and misappropriate

the cash. Hence, sales would be overstated.


Audit test of control To observe that incompatible duties are given to different roles and not done by 1

person.


Owner's concerns
By having different employees with different duties, there would be lesser risk of theft
addressed
by the employees of both the goods and the cash as different employees with
incompatible duties serve as a check against one another's work.







Proper Procedures of Authorisation
Existing Internal
control procedures

Price list and discounts are approved and authorised before giving to the staff to
place price tags.

Only the department managers can approve the ordering of goods.

Reservations of items have to be approve by the manager before the sales

assistant could allow a reservation.


Audit Objectives
Existence


Potential
The potential misstatement if proper authorisation is not in place would be that
Misstatement
prices or quantity may be authorised by any staff. E.g. The prices displayed are

undercharged as on the price list, hence, sales may be understated.


Audit test of
Compare prices on receipts to authorised price list. Review for manager's initials
control
on purchase invoice that the order is authorised.


Owner's concerns
Prices would be stated accurately and correctly from the authorised price list.
addressed
There would also be lesser risk of fraud by the employees as they do not have

sufficient authority to do so. Only staff with high responsibility has the authority.



Adequate Documentation and Records
Existing Internal
control procedures

Receipts are given to customers on purchase of the goods.

There is a duplicate cash receipt that is kept by the cashier and passed to the

administration staff for recording.

The administration staff records the sales transactions and amount of stock.

The cash register would also automatically have a record when goods are being
purchased.


Audit Objectives
Completeness / Accuracy


Potential
Misstatement

The potential misstatement is if these documentations are not done, omission of
records may be undetected. E.g. No receipts were given when the items were sold

and that item may not be recorded as it is not known whether did it take place.

Hence, sales would be understated.
Audit test of

control
To observe that adequate documents are given for cash sales and recording are

done in the books.


Owner's concerns
Whether the goods has been purchased can be determined from the receipt given
addressed
as well as whether the sensor would sound. (After scanning at cashier, sensor
should not sound). Record would also not be omitted undected with the

documents that are to be recorded by admin staff.


Physical Control over Assets
Existing Internal
To safeguard the goods, there are 19 surveillance camera and 5 anti-theft mirrors
control procedures
around the store. There are also door security sensors at the entrance of the store.

More expensive items are either attached with cable ties or placed in a locked glass

box. ( Pictures below we took at Clementi Popular)

Sensor bars are also placed in items which are slightly costly for easier tracking if
theft occurs. For CD and DVD, empty boxes are displayed instead of the original

product, where the original product is kept behind the cashier.

Safe deposit box in the store manager's office to keep the cash that is collected from

the sales. The warehouse is also locked after office hours.

Bag checks would be done on the employees at the end of the day before they are
allowed to leave.

Flamable items such as batteries are kept behind the cashier to avoid sabotaging of

stores by others.

Popular items that are frequently stolen such as sweets or earphone accessories are

kept near the cashier.


Audit Objectives
Existence


Potential
The potential misstatement is if these physical control over assets are not in place, it
Misstatement
will be susceptible to theft and fraud. E.g. Stocks on display may go missing

undetected (stolen by customer or staff), hence, inventories would be overstated.


Audit test of control
To observe if items are safeguarded with the proper internal control procedures
and the conditions of these procedures are working fine.


Owner's concerns
addressed

With the physical controls in place, theft by either employees or the staff would be
reduced as the stocks are being monitored by the manager as well as protected by

the other procedures. Losses would be minimised and profits maximised without any

stocks stolen. Misappropriation of cash would also be less likely to happen.








Independent Internal Verification
Existing Internal
control procedures

The manager checks the cash received in the cash register with the amount that is

stated on the duplicate cash receipts.

The manager would look at some items displayed outside and check whether the
prices are stated correctly as in the authorised price list.

Warehouse packer would check the goods received with the price on the receipt

as well as to check the number of goods in the box with those on the receipt.


Audit Objectives
Existence


Potential
The potential misstatement is if these checks were done, there would be higher
Misstatement
risk of fraud and error. E.g. Sales assistant may understate amount on the items

displayed and sales would be understated.


Audit test of
To observe that the managers does regular check when they have the time to do
control
so at the end of the day.


Owner's concerns
Having extra check would ensure that errors would be lower to happen.
addressed
Futhermore, theft and fraud would also be less likely to happen as these checks

would reveal any fault in the transactions or in the inventories.












Internal Control Weaknesses
No. Internal Control Weakness
Possible Misstatement Suggestions for
improvements
1.
There is an ease of access to the store's
Goods may go missing
Ensure that only
warehouse by any unauthorised personnel
undetected (Stolen).
authorised personnel
during working hours. At certain time, there is
Hence, inventories
are allowed access to
nobody keeping an eye on the goods. There is
would be overstated.
the warehouse with
also a back door which is not locked from the
lock and key and
inside which people could easily escape after
place cameras in the
stealing the goods.
warehouse.


2.
The keys to the glass box are placed in a
Anybody could open the Ensure that items are
cupboard which is not locked. Any staff or
glass box and steal the
not easily stolen or
customer may open and take the key to open
items in it.
taken away by having
the glass box. Surveillance cameras do not
Other items may be
more cameras as well
cover all spots and certain items are not placed
stolen easily. Hence,
as sensor bars to
with sensor bars. There is also not enough staff
inventories would be
safeguard the goods.
to keep an eye on the goods displayed.
overstated.


3.
Generally, the accounting for the cash balance
The cashier may
Proper authorisation
with the receipts should be done by the
misappropriate the cash of the person
manager only. However, the cashier may be
amount and it may go
collecting the cash
doing it as well. The cashier is in charge of both
undetected. Hence, sales and accounting for
collecting and accounting for the cash amount.
may be overstated.
the cash amount at
the end of the day.

4.
During peak periods, insufficient manpower in
The sales assistant may Proper segregation of
the warehouse is occasional and the sales
commit theft and go
duties is important
assistant would be doing both the job of the
undetected as he would so that the sales
warehouse packer and the sales assistant.
be the one in charge of
assistants would not

the goods and taking
be able to commit
out the goods.
theft as easily as they
Inventories may be
could.
overstated.

5.
When the warehouse packer receives the goods, Items may not be
Have an independent
the items are approved and displayed outside
delivered and does not
manager to check
by the sales assistant without an extra check by tally with the purchase
and verify that the
the sales assistant whether the goods tally with order received by the
goods delivered
the purchase order.
supplier. Inventories
tallies with the
would be understated.
purchase documents.

6.
Stationeries are easily stolen by employees,
Goods may go missing
Ensure that there is
especially pens where they would use them
undetected (Stolen).
physical stock count
during working hours and then take them home Hence, inventories
frequently to prevent
at the end of the day.
would be overstated.
goods being taken
without knowing.



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