Question 4 (14 marks)<\/p>
Park's Health Food Ltd. (PHS), established in 2010, is a chain of health food stores that<\/p>
sells products for a healthy lifestyle including herbs, protein powder, vitamins, and<\/p>
supplements. Until last year, the PHS had positive net income and cash flow as it took<\/p>
advantage of the health craze that has engulfed Vancouver over the last decade.<\/p>
Mary Jane, the owner of PHS, has provided the following memo about the operations of<\/p>
PHS:<\/p>
\"PHS has two main sources of revenue. The first is our five retail locations located<\/p>
across Vancouver. The second is our commercial contracts, in which we have entered<\/p>
into a number of contracts with various businesses and offices to deliver our goods<\/p>
straight to our commercial clients' businesses.\"<\/p>
\"PHS's cash position has deteriorated significantly over the last year and I am not sure<\/p>
why since our retail locations are still busy every time I visit any of our locations,<\/p>
especially since we added the smoothie bar at the locations near yoga studios. PHS<\/p>
was founded by Peter Parkland, my father, who died in a car accident last year. My<\/p>
father was very hands on and was always in the stores, at the warehouse, and meeting<\/p>
new clients. Since I just graduated university, my father's friend, Adrian Thain, a<\/p>
naturopath, volunteered to become CEO and I quickly said yes. This was especially<\/p>
helpful since just last month, our controller suddenly quit after having a very heated<\/p>
argument with Anthony DiCastri, our general manager of our commercial contracts. I am<\/p>
not sure what this argument was about, but according to the employees at the<\/p>
warehouse, it had to do with the new shipping procedures Anthony implemented. While<\/p>
Adrian has been very helpful, now I am not sure if he was the best choice since he does<\/p>
not have any management experience and has given management free rein over PHS's<\/p>
operations. Since my father passed away, PHS has struggled, and morale as been on<\/p>
the decline, especially since we had to reduce our employee bonuses this year, for<\/p>
obvious reasons.\"<\/p>
\"Our retail locations have state-of-the-art inventory management systems because<\/p>
some of our products are perishable and we need to monitor and track what sells and<\/p>
does not sell. Also, because of the high value of some of our other products such as the<\/p>
protein powders, we installed security cameras to prevent theft. We noticed that people<\/p>
were attempting to come into the retail locations to steal this type of inventory as they<\/p>
can be resold easily as long as the seal was intact.\"<\/p>
\"My father was very well connected in the business world and established all of the<\/p>
commercial contracts while Anthony ensured all of the products got out the door on<\/p>
time. These contracts were usually signed on an annual basis and we had one shipping<\/p>
company handle all of the deliveries. Deliveries consist of some of our more expensive<\/p>
goods such as protein powders since the commercial clients often order them to make<\/p>
fresh smoothies at their offices as a healthy perk.\"<\/p>
\"When Anthony took over the marketing of the commercial contracts, he also hired a<\/p>
second independent delivery company, 691947 B.C. Ltd. to reduce the dependence on<\/p>
one service provider. When my father was around, there were two shipments per day <\/p>
the breakfast run at 8 a.m. and the lunch run at 11 a.m. When Anthony hired the second<\/p>
delivery company, he added a third shipment at 5:30 a.m. This is inconvenient since our<\/p>
loaders do not come in until 7 a.m. To accommodate this shipment, Anthony loads<\/p>
these shipments himself. Anthony also enters all the pickups into the shipping logs for<\/p>
these early pickups.\"<\/p>
\"I also prepare the cheque runs, including the payments to the delivery companies.<\/p>
Anthony holds them back so he can hand them out personally to maintain good<\/p>
relations. Since the controller left, Anthony has really stepped up and taken on all of<\/p>
these additional responsibilities. There has been an increase in contracts, but our<\/p>
contract revenue has not increased at the same rate, even though the contract prices<\/p>
have remained consistent throughout all of the contracts.\"<\/p>
Required:<\/p>
a) Identify four possible fraud risk factors. (8 marks)<\/p>
b) Provide two audit procedures to determine if fraud is occurring at PHS, noting the<\/p>
objective for each procedure. (6 marks)<\/p>", "transcribed_text": "", "related_book": { "title": "Principles Of Accounting Volume 2 Managerial Accounting", "isbn": "0357364805, 9780357364802", "edition": "1st Edition", "authors": "OpenStax", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/2022\/04\/626124ab6f7b1_547626124ab246f0.jpg", "uri": "\/textbooks\/principles-of-accounting-volume-2-managerial-accounting-1st-edition-9780357364802", "see_more_uri": "" }, "free_related_book": { "isbn": "1724800272", "uri": "\/textbooks\/cna-exam-preparation-2018-2019-state-of-indiana-skills-board-exam-cna-state-boards-exam-study-guide-1st-edition-978-1724800275-312782", "name": "CNA Exam Preparation 2018 2019 State Of Indiana Skills Board Exam CNA State Boards Exam Study Guide", "edition": "1st Edition" }, "question_posted": "2024-06-28 09:50:56", "see_more_questions_link": "\/study-help\/questions\/business-finance-2024-September-13", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/use-the-standard-price-and-cost-data-provided-in-exercise-193437", "description": "Use the standard price and cost data provided in Exercise 8-1A. 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