You have been on the audit team of Oscars Cosmetics (Pty) Ltd (Oscars), a cosmetic (cream, perfume and make - up) manufacturer for the last two years. You are currently (July) working on the 30 June 2018 year-end audit, and have been assigned to the audit of the "cash and bank". Oscars sells its cosmetic products to various exclusive boutiques and fashion houses. In the last few years, Oscars has been challenged by cash flow problems as sales have slowed down and the big fashion houses have taken longer and longer to pay their accounts as sales slowed up. Most of the fashion houses now pay their accounts after 60 days. This has meant that Oscars, which used to pay its suppliers within 15 days to take advantage of prompt payment discounts, is now forfeiting the discount and paying on the last day ie on 30 days after invoice. This was necessitated by the cash flow problem caused by the customers only paying after 60 days. In an attempt to improve cash flow but in particular to raise cash for wages, Oscars opened up Oscars Cash Cosmetics (OCC) a retail store, which sells cosmetics directly to employees at discounted prices. OCC is the sales outlet (factory shop) attached to the factory, from which cosmetics manufactured by Oscars are sold at reduced prices. As part of the risk assessment procedures carried out at the planning stage of the audit, you assessed the risk associated with this retail shop OCC to be high. Your enquiries into the internal controls at OCC revealed the following: 1. The outlet was opened in September 2017 for employees of Oscars only, but had proved so popular that the decision was taken to open the outlet to the general public. Although this increased sales significantly, internal controls at the outlet were not adequately adapted to deal with the increase. 2. Sales are only made for cash; i.e. no cheaues, credit cards, etc. are accepted. The directors will not consider running the shop on anything other than a "cash only" basis, as this significantly reduces administration costs and no losses can be suffered from bad debts. The 3. The outlet is located at the back of Oscars finished goods warehouse. Cosmetics for the outlet can be conveniently transferred onto the shelves and racks in the outlet through an inter-leading door and employees can come and go as they wish. Customers also have easy access to the outlet, entering (and leaving) directly from the street. 4. The outlet is open during factory hours only i.e. from 7.30am to 4.30pm. 5. The outlet is run by Posh Speirs. If the outlet gets too busy for her to handle, she calls one (or two) of the finished goods stores clerks to assist. 6. As sales are made only for cash, customers are given a receipt. To prepare a receipt Posh Speirs writes out details of the goods purchased on a blank piece of paper, (using a sheet of carbon paper to make a duplicate), enters the sale details and stamps both copies with a Oscars Cosmetics (Pty) Ltd stamp. The customer is then required to sign both copies of the 4 receipt. The carbon copy is kept in a file by Posh Speirs, and the customer retains the "top copy". Receipts are only prepared by Posh Speirs, i.e. if she is being assisted by a stores clerk, the stores clerk, is not authorised to make out a receipt. 7. Cash from customers is placed in a large metal cash box, which is kept under the counter. Only Posh Speirs and James Backam, one of the clerks in the accounting department have keys to the cash box. At 4.30. pm each day Posh Speirs, or one of the stores clerks, drops off the locked cash box containing the day's takings with James Backam. At some stage prior to the commencement of business the following day, James Backam empties the cashbox, placing the cash in the company safe. At 7.30 am each morning Posh Speirs collects the empty cashbox from James Backam. (Note: All items sold in the OCC outlet are priced in multiples of R5, e.g. R20; R30; R55. This works very effectively to reduce the need to keep a change float of more than R300 ). 8. The daily cash from sales in the OCC outlet is kept in the company safe as described above. On Friday morning Adam Redlon, the senior wages supervisor, takes the money from the safe to make up the week's wages packets for factory workers. Additional cash to make up the pay packets is always required and to get the amount needed, Adam Redlon approaches the payments clerk for a cash cheque for an amount to make up the difference which he then cashes at the bank. 9. At the end of each month, Posh Speirs and Joe Ryder notify Charley Lux of the total amount of cash sales made (taken from the filed receipts) and the total amount of cash used for wages (taken from the wage records) respectively. Charley Lux passes the following journal entry e.g. Dr Wages RXXXX Cr Cash Sales RXXXX Raising of wage expenses and cash sales. When the audit is near completion, the audit manager requested you to perform the tests for subsequent events. You are required to: 3.1. Identify and explain the weaknesses in internal control at Oscars evident from the information provided in points 1 to 9 above. (Ignore any VAT implications). 3.2. List the procedures you will perform in order to identify all subsequent events