Living Leisure Resort Ltd. (Leisure) is a publicly listed company based in British Columbia. Its operations include skiing in the winter; hiking, kayaking and sport leisure activities in the summer. Leisure provides meals and accommodations for all budgets including a backpackers' hostel; family cabins; and a five-star resort hotel. Jessica and Abby Glebe own the majority of the shares in Leisure. Jessica is the Chief Executive Officer (CEO) and Chair of the Board of Directors (the Board); Abby is the Chief Financial Officer (CFO) of Leisure.

Jessica and Abby have a laid-back/informal management style. According to Abby, they take a hands-off approach to managing their employees at Leisure and trust that the employees work hard for the company - hence they try not to monitor them too closely to lose that easy-going vibe. In particular, Abby mentions that the accounting staff are very loyal to the company- so much so that many have never taken holidays, and they rarely take sick leave!

Jessica and Abby have not bothered much in the past with documenting formal procedures and policies in both the Human Resources department and the Accounting department. However, based on recommendations from the Audit Committee (subgroup of the Board) the couple have requested that the accounting staff start documenting the more common accounting procedures.

Jessica and Abby do not conduct annual employee performance reviews; they rely on their staff to tell them when there is a problem or if they want a raise in their wages. Leisure currently does not have a formal hiring procedure in place and rely on word of mouth to hire their employees.

The Accounting Department

There are three (3) people currently employed in the accounting department, the most senior of whom is Diego de Souza. Diego heads the accounts department and reports directly to Abby – however, no formal job descriptions exist for any of the accounting staff so direct reporting lines and tasks are not clear.

Diego is in his fifties and plans to retire in two or three years – originally Diego was a ski instructor at Leisure but after an incident with misappropriated company equipment, the Board wanted to fire him. Abby, felt that the company should give him another chance so transferred him to the accounting department where she can watch him.

Diego prides himself on his ability to delegate most of his work to his two junior staff members, Jack and Taylor. He claims he has to delegate so much because he is very busy developing the policy and procedures manual for the accounting department. The work that Diego delegates includes (but not limited to);

• opening all mail,
• reviewing purchase invoices to determine if payment should be made,
• creating the cheques including manual cheques when there is an urgent need to pay a vendor,
• recounting the cash received from the cash registers in the operational (i.e., restaurants, accommodations, and gift shops) side of the resort,
• depositing the cash in the bank (any of the two junior accountants will do it when they have the time to walk into town to make the bank deposit),
• performing all reconciliations - including the bank reconciliation,
• posting entries to the various journals, and
• performing the payroll function.

Taylor recently graduated with a Business Accounting diploma from Duke College and has no prior accounting experience. Jack works part-time—coming into the office on Mondays, Wednesdays, and Fridays. Jack is responsible for posting all journal entries into the accounting system and completing the payroll function. Taylor does the balance of the work, but they often help each other out in busy periods. Jack authorizes Taylor's transactions, and Taylor returns the favour by authorizing Jack’s transactions. Together, they usually can make the accounts balance.

Your answer should identify five (5) internal control (activities) that are weak or non-existent and need to be improved and/or implemented immediately.

Your answer should focus on the most significant control weaknesses that need immediate attention and address:

With the information above....

1. Identify and discuss each Weakness in a current control activity or a non-existent control activity
2. Discuss the implication of each weakness and what could result if the weakness is not corrected (i.e., what risks/issues/problems may result),
3. Provide a recommendation to correct/fix each weakness.

Control activities

Authorization controls and assigning responsibility

Information processing and documentation

Account reconciliations and independent verification

Physical controls

Segregation of incompatible duties

Monitoring controls and performance reviews