Question 5 (12 marks) Management of a local gym, Kick-it Fitness (KF), requires assistance analyzing its internal controls related to the revenue, receipts, and receivables cycle after a few months of poor cash flows at its newest gym location on Welle Street (Welle). KF's management is NOT sure if employee theft is an issue, but believes that strengthening controls in this area might help relieve some cash flow issues. In the past, KF has never had a formal budget - management's expectation was simply that revenues should grow month over month, which has been the case at all locations except Welle. Part of the issue in tracking sales at Welle is that KF's management wanted to save money and therefore avoided installing its standard IT system. When new customers purchase a membership with cash or credit and pay up front ($240 annual fee), the customer receives a handwritten receipt upon request. Customers who CANNOT pay up front in full must pay only one month's fees (520) up front and receive a handwritten invoice on lined paper (which is then listed in a paper notebook by the cash register), and are asked to come back and pay the remainder within 60 days. On a positive note, KF's owner, Scott Sampson, is very happy with the low rate of overdue accounts receivable at Welle. Al KF's other gymn locations, approximately 15% to 20% of memberships take more than 60 days to collect; at Welle, however, only 5% of memberships are listed in the notebook as overdue more than 60 days. Scott has asked employees to keep an eye out for the customers with these outstanding balances over 60 days, and to remind these customers next time they are in the gym to pay the remaining balance as soon as possible Because KF's management believes that KF has the best group of customers, and that KF's employees have developed strong relationships with these customers. Scott told the gym managers to leave all unpaid invoices in accounts receivable, with an expectation that KF's customers will eventually make full payment on outstanding membership dues Required: a) Identify three major control weaknesses from the revenue/receipts/receivables cycle at KF. explain to Scott what issue might result from each weakness, and provide one recommendation of an internal control to address each weakness. (9 marks) b) For each weakness identified in part (a), explain to Scott one internal control procedure that an auditor might perform, assuming the recommended controls are put in place and operate effectively