1) Internal Control over Sales Returns. You are the auditor for Konerko's Office supply store, which is opening for business next week. The store owner has established all the controls you have recommended for ensuring that sales are recorded properly and cash is accounted for. The owner has heard from other small business owners that employees often used returned goods as means of skimming money from the register. Required: a. How might an employee use returned goods to skim money from the register? b. What controls would you recommend to prevent or detect fraudulent returns? c. What audit procedures might you perform to detect fraudulent returns? 2) Manipulated Bank Reconciliation. Caulco Inc. is the audit client. The February bank statement is shown in Exhibit 6.6 in the text. You have obtained the client-prepared bank reconciliation as of February 28 (see the following). Required: Check 2231 was the first check written in February. All earlier checks cleared the bank, some during January and some during February. Assume that the only February-dated canceled checks returned in the March bank statement are 2239 and 2240 showing the amounts listed in the February bank reconciliation. They cleared the bank on March 3 and March 2, respectively. The first deposit on the March bank statement was $1,097.69 credited on March 3. Assume also that all checks entered in Caulco's cash disbursements journal through February 29 have either cleared the bank or are listed as outstanding checks in the February bank reconciliation. Determine whether any errors exist in the following bank reconciliation. If errors exist, prepare a corrected reconciliation and explain the problem. Bank reconciliation $7,374.93 1,097.69 CAULCO INC. Bank Reconciliation February 28 Balance per bank Deposit in transit Outstanding Checks Number Date Payee 2239 Feb 26 Alpha Supply 2240 Feb 28 LC. Stateman Total outstanding General ledger balance Feb. 28 Amount 500.00 254.37 (754.37) $7.718.25 Bank statement First RepublicBank PUBLICOANK AUSTIN ON OFFICE AUS ** YOUR CHECKING ACCOUNT TO YOUR PREVIOUS BALANCE O YOU ADDED 1 DEPOSITS YOU SUBTRACTED 26 VITA GIVING YOU A CURRENT BALA NUMBER OF DAYS USED OR AVE YOUR AVERAGE LEDGER BALANCE YOUR LOW BALANCE OCCURRED DATE CHECK 2201 2231 2205 2232 2206 2207 0208 VONNNN 2209OZOS