A company has approximately 250 vending machines which sell childrens’ toys and novelties. The machines are equipped with animated puppets which move and play tunes whenever coins amounting to the standard price are inserted into the slot. The gift is then delivered in a small plastic sphere.

The stock in the machines is replenished and their cash boxes are emptied by van drivers employed by the company. The machines are spread across a wide region and several drivers are employed. On average, each machine is emptied once every three days. All drivers are based at head office. A number of routes have been devised so that each machine is visited regularly, total mileage travelled is minimised and all drivers can return to base each evening without having had to cover an unreasonable distance.

An audit junior is unhappy with the controls which prevent fraud or error in the recording of income for this company. He has drafted the following management letter:

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To whom it may concern, We have recently completed our review of your internal controls as part of our normal auditing activities. These were generally satisfactory, although the following improvements are suggested: (a) Van drivers should travel in pairs, one to collect the cash and the other to check his calculations. Both should sign a collection book to show that they agree the amount stated. (b) On a regular basis, the counting teams should be accompanied by a senior manager, perhaps the chief accountant, to prevent staff fraud. (c) As an alternative to (b) above, spot checks could be conducted on drivers while they are emptying machines. (d) Cash should be banked immediately after each machine has been emptied. This will prevent the risks of loss, robbery or fraud which arise from having each driver bank the morning's takings at a bank on his route, with the afternoon's takings being brought back to head office when the van was being returned to the depot. (a) List the shortcomings of the junior's letter. (b) Suggest some cost-effective controls over income which could be implemented by the company.