Carmel Harrison runs Emerald Spa, a business providing women-only hairdressing, beauty, relaxation massage, and counseling services in a small tourist town. Ninety percent of the clients using the beauty and massage services at Emerald Spa are weekend visitors to the town, but 80 percent of the hairdressing and counseling clients are locals. The masseuse and counselor have formal qualifications and are registered with the medical authorities, allowing clients to claim the cost of the service with their private health insurer if an appropriate receipt is provided when the client pays.
Emerald Spa has just opened another branch of the business in a town 100 kilometers away, and there are plans for a third branch to be opened next year. Carmel has been very busy establishing each new branch and relies on staff in each office to run the day-to-day operations, including ordering supplies and banking receipts. In addition, the branch manager organizes the staff and authorizes their time sheets. Carmel makes the payments for rent, power, salaries, and large items of expenditure, such as furniture purchases.
Required
(a) Give examples of transactions that would occur at Emerald Spa.
(b) Explain what could go wrong with these transactions if the system of internal controls could not meet any of the seven generally accepted objectives of internal controls.