Rare Earth Clothing is a retail store specializing in women'sclothing. The store has established a liberal return policy for theholiday season in order to encourage gift purchases. Any itempurchased during November and December may be returned throughJanuary 31 with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any itemunder $100. If the item is more than $100, a check is mailed to thecustomer whenever and item is returned, a store clerk completes are turn slip, which the customer signs. The return slip is placed ina special box. The store manager visits there return counterapproximately once every two hours to authorize return slips.Clerks are instructed to place the returned merchandise on theproper rack on the selling floor as soon as possible. This year, returns at Rare Earth Clothing have reached an all-time high. Thereare a larger number of returns under $100 without receipts.
A. How can sales clerks employed at Rare Earth Clothing use the stores return policy to steal money from the cash register?
B. What internal control weaknesses do you see in the returnpolicy that makes cash thefts easier?
C. Would issuing a store credit in place of a cash refund forall merchandise returned without a receipt reduce the possibilityof theft? List some advantages and disadvantages of issuing a storecredit in place of a cash refund.
D. Assume that Rare Earth Clothing is committed to the currentpolicy of issuing cash refunds without a receipt. What changescould be made in the store's procedures regarding customerrefunds in order to improve internal control?