Kasus Chapter 1

Case Study : Wong’s Pharmacy

Thomas Wong was the Owner/Manager of Wong’s
Pharmacy, a small, single-location drugstore. The Store
was founded by Thomas’s Father, and it had operated in
the same location for 30 years. All of the employees who
worked in the store were family Members. All were hard
Workers, and Thomas had the utmost trust in all of Them.
Although the Store Thrived in its early years, performance
in the last few Years had not been good. Sales and Profits
were Declining, and the problem was getting worse. The
Performance problems seemed to have begun
approximately at the time when a large drugstore chain
opened a branch two Blocks away.

Case Study : Leo ‘S Four-Plex Theater

Leo’s Four-plex Theater was a single-Location, Fourscreen
theater located in a small town in west Texas. Leo
Antonelli bought the Theater a year ago and, hired Bill
Reilly, his Nephew, to manage it. Leo was concerned,
however, because the Theater was not as Profitable as he
had thought it would be. He Suspected the Theater had
some control Problems and asked Park Cockerill, an
accounting Professor at a college in the adjacent town,
to study the situation and Provide suggestions.
Park found the Following :
1. Customers purchased their tickets at one of two ticket
booths located at the front of the Theater. The
Theater used general admission (not assigned) seating.
The Tickets were color coded to indicate which movie
the customer wanted to see. The Tickets were also
dated and stamped “good on day of sale only” The
Tickets at each Price (adult, child, matinee, evening)
were prenumbered serially, so that the number of
Tickets sold each day at each price for each movie
could be determined by subtracting the number of the
first ticket sold from the ending number.

2. The Amounts of cash collected were counted daily and

compared with the total value of tickets sold. The cash
counts revealed, almost invariably, less cash than the
amounts that should have been collected. The
discrepancies were usually small, less than $10 per
cashier. However, on one day two weeks before Park’s
study, one cashier was short by almost $100.

3. Just Inside the theater’s front doors was a lobby with a

refreshment stand. Park observed the refreshment
stand’s operations for a while. He noted that most of
the stand’s attendants were young, probably of high
school of college age. They seemed to know many of the
customers, a majority of whom were of similar ages,
which was not surprising given the theater’s small-town
location. But the familiarity concerned Park because he
 had also observed several occasions where the stand’s
attendants either failed to collect cash from the
customers of failed to ring up the sale on the cash
register.

4. Customers entered the screening rooms by passing

through a turnstile manned by an attendant who
separated the ticket and placed part of it in a locked
‘stub box.’ Test counts of customers entering and
leaving the Theater did not reconcile either with the
number of ticket sales or the stub-counts. Park found
evidence of two specific problems. First, he found a
few tickets of the wrong color or with the wrong dates
in the ticket stub boxes. And Second, he found a
sometimes significant number of free theater passes
with Bill Reilly’s signature on them. These problems did
not account for all of the customer test count
discrepancies, however. Park suspected that the ticket
collectors might also be admitting friends who had not
purchased tickets, although his observations provided
not direct evidence of this. When his study was
complete, Park sat down and wondered whether he
could give Leo suggestions that would address all the
actual and potential problems, yet not be too costly.
Case Study : Private Fitness, Inc.
“I don’t know how much money I might have lost because
of Kate. She is a long-time Friend whom I thought I could
trust, but I guess that trust was misplaced. Now I’ve got
to decide Whether or not to fire her. And then I’ve got to
Figure out a way to make my Business work effectively
without my having to step in and do Everything myself.”
Rosemary Worth was talking about the consequences of a
theft that had recently occurred at the business she
owned, Private Fitness, Inc. Private Fitness was a small
health club located in Rancho Palos Verdes, California, an
upscale community located in Los Angeles area. The club
offered personal fitness training and Fitness classes of
Various types, Including aerobics, spinning, body sculpting,
air boxing, kickboxing, hip hop, step and pump, dynamic
stretch, Pilates, and Yoga. Personal training clients paid
$50 per hour of their instructor and use of the club during
prime time. During slower times (between 9:00 a.m. and
4:00 p.m.) the price was $35 per hour. The price per student
for each hour-long fitness class was $12. Some quantity
discounts were offered to clients who prepaid. Unlike the
large health clubs, Private Fitness did not offer
memberships for open access to Fitness equipment and
classes. Prior to starting Private Fitness, Rosemary has
been working as an aerobics instructor and fitness model.
She had won many local fitness competitions and was a
former finalist in the Ms. Fitness USA competition. She
wanted to go into business for herself to Increase her
standard of living by capitalizing on her reputation and
knowledge in the growing fitness field and to have more
time to spend with her two young children. Private Fitness
has been operating for six months. To Open the club,
Rosemary had to use almost all of her personal savings, plus
she had to take out a bank loan. The building Rosemary
rented, located in a convenient strip mall with ample
parking, had formerly been operated as a fresh food
market. Rosemary spent about $150,000 to renovate the
facility and to buy the necessary fitness equipment. The
club was comprised of five areas : an exercise room, a
room containing aerobic equipment (e.g. treadmills, stair
climbers, stationary bicycles, cross-country ski machines),
a room containing weight machines and free weights, men’s
and ladies’ locker rooms, and an office. Rosemary
contracted with five instructors she knew to run the
classes and training sessions. The Instructors were all
capable of running personal training sessions, but they
each tended to specialize in teaching one or two types of
Fitness classes. Rosemary herself ran most of the spinning
classes and some of the aerobics classes. The Instructors
were paid on commission. The Commission, which ranged
between 20% and 50% of revenue, varied depending on the
Instructor’s experience and on whether the Instructor
bought the Particular client to Private Fitness. As
Manager of the Business, Rosemary Hired Kate Hoffman,
one of the Instructors and a long-time friend. Kate’s
primary tasks included marketing, facility upkeep,
Scheduling of Appointments, and record keeping. Kate
was paid a salary plus a commission based on gross
revenues. During normal business hours when Kate was
teaching a class, one of the other Instructors, or
sometimes a part-time clerical employee, was asked to
staff the front desk in return for an hourly wage. Private
Fitness was open from 05.30 a.m. to 9.00 p.m., Monday
through Friday. It was also open from 06.00 a.m. to noon
on Saturday and noon to 3.00 p.m. on Sunday. Rosemary
was still in the Process of Building the volume necessary
to operate at a profit. Typically, one or two Privat Fitness
clients were in the facility during the prime early morning
and early evening hours. A few clients came in at other
times. Classes were Scheduled throughout the times the
club was open. Some of these classes were quite popular,
but many of them had only one or two students, and some
classes were cancelled for lack of any clients. However,
Kate’s marketing efforts were Proving effective. The
Number of clients was growing, and Rosemary hoped that
by the end of the year the Business would be earning a
Profit. As the quote cited above indicates, however, Rose
Mary gradually realized that Kate Hoffman was stealing
from the club. On One occasion when Rosemary came to
the club she noticed $60 in the Cash Drawer, but she
noticed when she was leaving that the drawer contained
only $20. She asked Kate about it, and Kate denied that
there had been $60 in the Drawer. Rosemary wondered if
other cash amounts had disappeared before they had been
deposited at the bank. While some clients paid by credit
card or check, others, particularly those attending Fitness
Classes, often paid cash. Rosemary became very alarmed
when, during a casual conversation with one of the other
Instructors, the instructors happened to mention to
Rosemary some surprising “good news.” The good news was
That Kate had brought in a new Private Fitness client who
was working out in the 1.00-2.00 p.m. time period on
Monday, Wednesday, and Friday. Kate was doing the
training herself. However, Rosemary checked the records
and no new revenues recorded because of this new client.
She decided to come to the club during the period to see
if this client was indeed working out. Since the client was
there and no revenue entry had been made, she
confronted Kate. After first explaining that she had not
yet gotten around to making the bookkeeping entry, Kate
finally admitted that his client had been writing her checks
out to Kate directly, In exchange for a discount. Kate said
that she was very sorry and that she would never be
dishonest again. Rosemary realized she had two major
Problems. First, she had to decide what to do with Kate.
Kate was a valuable instructor and o longtime friend, but
her honesty was now a question. Should she forgive Kate
or fire her? Second, Rosemary also realized that she had
an Operating problem. She did not want to step in and
assume the Managerial role herself because she had
significant family responsibilities to which she wanted to
be able to continue to attend. But how could she ensure
that her Business received all the revenues to which it was
entitled without being on site at all times herself? Should
she leave Kate, who promised not steal again, in the
manager position? Or Should she hire one of the Other
Instructor, or perhaps a non-instructor, to became a
Manager? And in either case, were there some procedures
or controls that she could use to Protect her Business’s
assets?