Part I

Internal control case study

The local Church wants to raise money for a new sound system for its auditorium. The primary fund-raising event is a dance at which the famous disc jockey OAL will play classic and not-so-classic dance tunes. RDX, the music and theater instructor, has been given the responsibility for coordinating the fund-raising efforts. This is RDX's first experience with fund-raising. He decides to put the choir in charge of the event; he will be a relatively passive observer.

RDX had 500 unnumbered tickets printed for the dance. He left the tickets in a box on his desk and told thechoir members to take as many tickets as they thought they could sell for $5 each. In order to ensure that no extra tickets would be floating around, he told them to dispose of any unsold tickets. When the choir members received payment for the tickets, they were to bring the cash back to RDX and he would put it in a locked box in his desk drawer.

Some of the choir members were responsible for decorating the gymnasium for the dance. RDX gave each of them a key to the money box and told them that if they took money out to purchase materials, they should put a note in the box saying how much they took and what it was used for. After 2 weeks the money box appeared to be getting full, so RDX asked a church member to count the money, prepare a deposit slip, and deposit the money in a bank account RDX had opened.

The day of the dance, RDX wrote a check from the account to pay the DJ. OAL, however, said that he accepted only cash and did not give receipts. So RDX took $200 out of the cash box and gave it to OAL. At the dance, RDX had another church member working at the entrance to the gymnasium, collecting tickets from choir members, and selling tickets to those who had not prepurchased them. RDX estimated that 400 people attended the dance.

The following day, RDX closed out the bank account, which had $370 in it, and gave that amount plus the $230 in the cash box to Church Minister. The minister seemed surprised that, after generating roughly $2,000 in sales, the dance netted only $600 in cash. RDX did not respond.

Instructions

Identify as many internal control weaknesses as you can in this scenario, and suggest how each could be addressed.

Part II

What does your Target Corporation state about its Internal control procedures?