Munch Ltd. (Munch) operates a chain of sandwich shops. Munch was founded by Bill and Sergei, two experienced chefs who characterize themselves as social entrepreneurs.

Munchs business model involves hiring underprivileged individuals and providing them with the proper culinary training to manage sandwich shops and to source local ingredients.

Munch locates the shops in low-income neighborhoods and markets the shops as selling

healthy, reasonably priced food. Munch partners with local social service agencies to

provide the needed education and training. The social service agencies also provide

access to government grants, which helps keep costs low. The food is sourced

independently by each store manager. The store manager receives the food inventory and

then sends the bill to the senior manager who sends it to the Munch head office where the

bill is paid.

Sergei recently retired and Bill wants to initiate a substantial growth strategy that will

require significant capital.

Munch currently operates 20 shops in several cities and has an elected board of directors

to oversee its activities. None of the board members have strong financial backgrounds.

At a recent meeting, some of Munchs board members commented that recent shop openings have been in affluent neighborhoods and that the latest marketing is targeted to a wealthier clientele. The board is concerned that Munch is moving away from its mission of social change through education and entrepreneurship. The board also noted concerns that the senior manager that was overseeing all of the locations had left early in the year and the newly hired manager had just tendered her resignation.

All shop locations accept cash only for its sales. The manager of each shop location

deposits the cash every second day before closing at 11 p.m. Cash reports showing

product sales and cash deposited are compiled weekly by the managers and are submitted

to Munch Ltd. at the end of each month.

Required:

Describe FIVE inherent or control risks present in this scenario. Identify the type of risk for each (inherent or control) and note whether the risk is at the financial statement or transaction level. (10 marks)