Summer Blossom Spa Company is a 22-store chain in the Southwest that sells hot tubs and accessories. Each store has a salaried manager and an assistant store manager. The salespeople are paid an hourly wage plus a volume-based commission.

The company uses cash registers to record sales transactions. The salesperson enters his or her employee ID at the beginning of his/her shift. For each sale, the salesperson scans each item's bar code, which then displays the item's description, selling price, and quantity. The cash register assigns a consecutive number to each transaction automatically, and then prints a sales receipt that shows the quantity, price, the sales tax, and the total.

The salesperson collects payment from customers, gives the receipts to customers, and either directs customers to the warehouse to obtain the items purchased or arrange for delivery. The salesperson's responsibilities include determining whether credit card sales are approved, approving credit sales, and approving sales paid by check. Sales returns are processed in the reverse manner. When necessary, the salesperson issues a return slip.

At the end of each day, the cash registers print a list of sales receipts in sequence and provide batch totals for all cash sales, check sales, and credit card sales, including sales returns. The assistant store manager reconciles these batch totals to the cash in the cash register, cash register reports, the total of the pre-numbered sales invoices, and the return reports. He also prepares a daily reconciliation report for the store manager's review.

Sales with all payment methods are reviewed by the manager, who then prepares the bank deposit for the day. The manager deposit payments received at the bank, validate deposit slip, and then file it by dates. At the end of each month, the manager performs the bank reconciliation. On a daily basis, the pre-numbered invoices, return reports, cash register reports, and reconciliation report are sent to corporate headquarters, where all the data are consolidated with data from other stores. Corporate headquarters sends a Commission Report to each store manager for review every week.

Questions:

a.Identify the risk(s) faced by Summer Blossom, based on the risk assessment component of the COSO framework.

b.Identify any control strengths in Summer Blossom's revenue system.

c.What risks are dealt with by the control strengths identified above?

d.How might Summer Blossom improve its internal control system?