Republic of the Philippines

DON HONORIO VENTURA STATE UNIVERSITY

Villa de Bacolor, Pampanga
Mexico Extension Campus

ACTIVITY =
INTERNAL CONTROL

CASE 1

Recently , while eating lunch with your family at a local cafeteria , you observe a practice
that is somewhat unusual. As you reach the end of cafeteria line, an adding machine
operator asks how many persons are in your party. He then totals the food purchase on the
trays for all of your family and writes the number of persons included in the group on the
adding machine tape. He hands you the tape and asks you to pay when you finish eating.
Near the end of the meal, you decide you want a piece of pie and coffee so you return to the
line , select your food and again go through the line. The adding machine operator goes
through the same procedures, but this time he staples the second tape to the original and
returns it to you.

When you leave the cafeteria , you hand the stapled adding machine tape to the cash
register operator , who totals the two tapes , takes your money and puts the tapes on a
spindle .

Required :

a. What internal controls has the cafeteria instituted for its operations ?

1 Strengthening control environment

It can be seen in the cafeteria that the adding of operator machine is different to the cash
register. This is one internal control being used by the business in order to have a proper
segregation of duties. Thereby, 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. Strengthening control environment

2 Addressing Risks concerning the business

The business is being responsible and accountable in doing its part in trying to prevent
risks before it actually happen. To avoid the risk of 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
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

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 formation 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 controls ?
It can be evaluated by cross-referencing the tapes on the spindle with the number of
receipts of the adding machine.
 This confirms 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 attaching together all the tapes of a single customer, possible signs of
manipulations can be foreseen if a certain individual decides to over-purchase.
 Just 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 cafeteria?

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.
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

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, this will prevent understatement of sales caused by theft
from employees.