Situation: Your client, Janice Rush, is the owner of a high-end boutique that sells jewelry, fine china, sterling flatware, and other gifts. The store has ten employees, mostly sales personnel who advise customers, handle inventory and process sales transactions. Ms. Rush is an astute business professional but she has little training in business.
She has reached out to you, representing ABC Accounting Firm for a few reasons:
a. she has noticed a decrease in her inventory but there does not appear to be a correlating increase in sales.
b. she has also noticed discrepancies between the dollar amount generated through sales and the dollar amount deposited in the bank
she does not have a strong general ledger system as she deals with small volume transactions that have high values. She also does not have a strong system of internal controls.
You have had the opportunity to meet with Ms. Rush in person along with your Partner-level supervisor from ABC Accounting Firm, to better understand her concerns and share with her some professional advise. Subsequent to the meeting, you need to follow up with Ms. Rush.
Ask: Write a letter to Ms. Rush to serve as a follow-up to the discussion. The letter will be provided to your Partner for review prior to sending to Ms. Rush. Within the letter, include the following:
1. provide an overview of the financial reporting and tax implications if Ms. Rush is unable to reconcile her inventory, sales and deposits
2. discuss the importance of a strong system of internal controls, while providing at least 5 suggestions as to what types of controls could be implemented in the short term with more effective controls being implemented in the long term
3. identify other concerns Ms. Rush may not have considered but should evaluate
4. Define what services ABC Accounting Firm could provide to further assist Ms. Rush