Pelican Royale Theater is owned by Blanche DuBois LLC, which owns and operates several historic theaters and jazz clubs in New Orleans. The Pelican Royale is an historic one-screen theater located in the Garden District. It typically screens four movies per day, beginning with a matinee showing of a classic movie, two showings of current-run movies during the evening, and ending with a classic horror movie at 11 p.m.

A ticket booth is located near the entrance to the theater. Ticket agents work one of two shifts: noon to 6:00 p.m. or 6:00 p.m. to midnight. All ticket agents are bonded by DuBois LLC's insurance company. Cash and credit card sales are accepted. For either type of sale, the ticket agent uses a point of sale system that automatically records each sale in the theater's accounting records and automatically ejects a ticket. The ticket agent ensures that credit sales are approved by the issuing card company before the sale can be completed. Tickets are issued from a pre-numbered roll of tickets that are inserted and locked into the machine by the theater manager at the beginning of each ticket agent's shift.

After purchasing a ticket, the customer takes the ticket to a doorperson stationed at the entrance to the theater lobby, about 60 feet away from the ticket agent's booth. Doorpersons work the same shifts as the ticket agents. The doorperson tears the ticket in half, admits the customer, and returns the ticket stub to the customer. The numbered half of the ticket is dropped into a locked box next to the doorperson. Only the manager has the key to the ticket stub box. At the end of each doorperson's shift, the manager dumps the contents of the stub box into an envelope, seals it, writes the shift date and doorperson name on the outside of the envelope, and puts the envelope in a file drawer. When the drawer gets full, the manager discards envelopes that are older than 30 days.

At the end of each ticket agent's shift, the manager removes the ticket roll from the machine and inserts a new one for the next shift. The manager counts the cash in front of the ticket agent, and the ticket agent initials the cash count sheet. The manager puts the cash in an envelope and stores it in a locked safe in the theater office. Only the manager, the assistant manager (who works on the manager's days' off) and DuBois LLC's treasurer have access to the safe, which is via a keypad with a unique access code for each person. The manager prepares a deposit slip the next morning when arriving at the theater and walks the cash over to the bank, a few blocks away.The manager believes it is safer to store the cash overnight than to walk to the bank in the dark.

The manager scans the deposit slip and the initialed cash count sheets and emails the scan to DuBois LLC's treasurer and accounting department. (The deposit also includes refreshment sales, supported by cash count sheets, which you may ignore for this analysis.) The treasurer logs onto DuBois LLC's bank account and verifies that the cash deposit equals that shown on the deposit slip. The accounting department receives an automated report of ticket sales from the prior day. A bookkeeper reconciles cash sales recorded for each shift to the initialed cash count sheets and cash deposit. The accountant logs onto the theater's Visa and MasterCard merchant accounts and prints account activity for the previous day. A bookkeeper reconciles credit sales per the automated sales report to account activity. The bookkeeper also monitors the Visa and MasterCard merchant accounts, flagging for the accountant any sales for which DuBois LLC has not received payment within three days.

1) For each of the three types of Preventive Controls discussed in Module 11 (listed below), provide two examples from the above description of DuBois LLC's internal control system.

Defined Responsibilities:

Custody of Assets:

Segregation of Duties:

2) As a detective control, DuBois LLC employs a secret shopper to visit the various businesses and report on any irregularities or potential customer satisfaction issues. The secret shopper reported that when she paid cash for her ticket, the agent handed her a ticket from a small stack, explaining that the ticket machine was jammed; this was a temporary fix so that customers didn't need to wait. The secret shopper also reported that the doorperson kept her entire ticket. When she asked, "what about my ticket stub?" the doorperson replied, "Oh, I'll remember you if you need to leave the theater for any reason, no need to be searching through your purse for a tiny stub - that's what we call customer service!"

What internal controls concern(s) is raised by the secret shopper's report? What improvement(s) would you make to address your concern(s).