Problem
Internal Control
The Bluff Food Festival is a major public event held for 7 days over June each year by the District Council of Bluff, an audit client of your firm. The entrance fee to the Festival covers the cost of all food, drinks and entertainment. The Council uses volunteer staff to undertake the various duties involved in the Festival. Most of the volunteers have been involved in the Festival since it began in 1986.
In 2021 the Festival will be audited for the first time due to a change in Council regulations, and your firm has accepted the task. The Chairman of the Board, Ms Amelia Rix has revealed there were some problems with previous festivals because the ticket money collected seemed low when compared to the amount of food and drink consumed. Your audit planning has identified the following information.
The public can only enter the park where the event is held by one of two gates. Admission prices are $25 per adult and $10 per child (under 16 years old). Each gate is attended by 2 gatekeepers (both volunteers) whom have each been issued with printed entrance tickets, a cash float for change, an electronic scanner for Electronic Fund Transfers (EFT) purchases and a bag to hold the cash and tickets. The entrance tickets do not differentiate between adults or children. Each bag is pre-numbered and a record is kept of the gatekeeper giving the bag at the beginning of the day. Each gatekeeper collects money and issues tickets to the paying customers. If a gatekeeper runs short of tickets he/she can take some tickets from one of the other gatekeepers. As each customer(s) enters the park, gatekeepers calculate the total admission price, collect the money, and then hand over the appropriate number of tickets. Gatekeepers work in shifts of 3 hours and when they are relieved they hand over their bag containing the cash and tickets to the next gatekeeper.
The Festival attracts large crowds, and gatekeepers can hold large amounts of cash. As a result, every two hours, two security staff go to each gatekeeper and remove cash so as to keep the amount of cash at the gate to a minimum. The security staff then go to the Treasurer's office, where the Treasurer counts the cash with the security staff present. Once counted, the amount of money collected is manually recorded in a cash collections book by the Treasurer together with the gatekeeper's name, and the money is then put in a safe. The safe is controlled by the Chairman (Ms Rix) who is the only person, besides the Treasurer who has access to the safe and therefore the cash. When the Festival is finished for the day and the gates are closed each day, the gatekeepers take the remainder of the cash receipts to the Treasurer's office where they each count their respective amounts, record the details in the cash collection book and then put the cash in the safe together with any unused tickets (which will be used for sales the following day). The sales made using EFT are recorded in a separate receipts book to keep cash receipts separated from EFT receipts.
Cash is kept in the safe, along with the EFT scanners until the end of the Festival. Once the Festival has finished the safe is opened by Ms Rix, who takes the cash, reconciles the cash collections book with the tickets sold (ie tickets issued - returns = tickets sold) and then deposits the cash into the Bank. The total receipts are then aggregated and a summary of receipts and payments is prepared by Ms Rix to present to the District Council of Bluff.
Task
I. Identify and explain four weaknesses in the control of revenue and cash of the Festival.
II. For each weakness identified in (I) above, identify an ERROR that could occur as a result of the weakness. (Hint: Be very specific as to the nature of any error could occur - do not identify any examples of fraud - errors do not include examples of fraud. Marks will not be awarded for any examples given detailing fraudulent practices that could occur).
III. For each weakness identified in (I) above, what control would you recommend to remove the weakness? In recommending controls, note that the Festival cannot afford large capital outlays for plant and equipment.