History of HRI Express

HRI Express and Restaurant Supplies was established in September 2001. The objective was to sell restaurant supplies, however due to various reasons, owner Sue Hufford decided to shift focus. In October of 2001 the small business kept its name and ventured into the planting of lettuce and herbs which has been in operations since then. HRI produces lettuces, fresh parsley, mint, cilantro, and sweet basil. Table 1.1 below details the prices of it produce.
Table 1.1: Prices of HRI Express Produce
Produce Price
Big Lettuce 5 0z to 80z $5 per bag
Mesclun Mix 6oz $5 per bag
Romaine Lettuce 8 oz $5 per bag
Fresh Parsley $7 per bag
Mint $7 per bag
Cilantro $5.50 per lb
Sweet Basil $5.50 per lb

HRI Express produce are purchased by hotels, resorts and embassy diplomats. Its delivery schedule for the week entails deliveries to Belize City on Wednesdays and to Belmopan on Thursdays. The business is comprised of six (8) persons, namely:
• Owner - Sue Hufford as the owner is responsible for the more technical operations of the HRI Express.
• Marva is responsible in the book aspect of HRI Express.
• Six (6) persons who work on the plantation and oversees the production process.

Sales and Collection Procedures

An overview of HRI Express’s Sales and Collection Cycle is illustrated in Figure 1.1. The cycle begins with the receipt of customer orders via telephone, email or on site. A copy of the customer order is routed to plantation workers who prepare and package the good requested. The number of packages prepared or orders fulfilled per day are properly logged detailing the quantity and weight of packaged goods. Then the good is taken and to the office for delivery. Packages to be delivered are cross checked by the front office personnel to verify that items stated on the customer order are indeed packaged. Duplicate sales receipts are written. One copy will accompany the package and the other copy is held for filing purposes. All receipts are pre-numbered for future reference.
Upon delivery of produce to customers, the delivery personnel may receive payment in cash or by cheque. In certain cases customers deposit direct to HRI Express’s bank account. In cases involving direct deposit, a copy of the deposit slip is faxed to the business to verify payment before produce can be delivered. HRI Express operates on a cash basis and as a result sales on credit are prohibited. However upon authorization for the owner customers engage in contract standing order. Agreement to a standing order entails the amount of produce to be received weekly by the customer with payment due. Currently the business has no standing order. Payments received in cash or cheques logged immediately in a cash receipt book. Deposits are done on a weekly basis. Bank receipts of deposit are kept on file to for monthly bank reconciliations. Approval rests solely with the owner; however authorization is shared with the front desk personnel. Both the owner and front desk personnel can sign off on business cheques.

Analysis of HRI Express’s Sales and Collection Procedures

Existing Internal control There are a few existing internal controls that alerts the owner if any misstatement or errors and fraud exist. The owner basically reviews cash receipts with the actual cash received on a weekly basis, is also responsible for authorizing contracts and sales on credit although it is not tolerable in the firm. On the other hand, the bookkeeper is responsible to verify and pre-numbered sales receipts and to prepare monthly bank reconciliations.

Deficiencies
HRI Express is a micro business so its staff is very small in number. Because of that, the segregation of duties is minimal and that causes a deficiency in internal control. Insufficient staff leads to one person being in-charge of majority of the accounting matters of the business. In addition, the lack and inadequacy of documents and records in the sales and collection cycle makes it difficult to figure out if fraud is taking place and if the business is running as profitably as it should be. There is not enough effort placed in order to follow up with customers as well.
Finally, the absence of technological verification makes it easier for errors to go unnoticed as no system is in use that would alert them of such errors. Software would also give them a source of record and could be used to make summaries at different periods in time. Audit evidence
In conducting an audit to this particular firm, there are few audit evidence that is available to be used. The main audit evidence that can be used is documentation since the company keeps customers orders that are received via email, telephone and in person. Other type of documents that is very important is the pre-numbered sales receipt and the monthly bank reconciliation statement as well as sales contract.
As an auditor the main way to verify sales is confirmation from HRI Express customers that the sales actually occur and it is not fictitious. Inquiry of the book keeper and the owner is also important in gathering audit evidence as to determine if material misstatement or fraud is occurring.
Tests that can be performed
In the HRI Express, the tests that can be used to detect possible misstatement, error, fraud or even weaknesses in the firm is use test of controls and substantive test of transaction. Test of controls is crucial in understanding the internal controls of the firm by determining if there are weaknesses in the internal control. Some specific assessment is to examine customer orders, sales receipts and bank reconciliations. Other verification is to observe if monthly statement is sent to customers on sales contract indicating their beginning and ending balance, date of each sale and cash payment received.
In terms of performing substantive test of transaction is essential to make sure that all transactions are correctly recorded. This is done by tracing cash receipts to bank statement(occurrence), Compare date of deposit per bank statement to the dates in the cash receipts log book (timing) and to trace sales journal to supporting documents.
Recommendations
It is advocated that another person should be hired by HRI Express to keep the record of the sales, and expenses in a computerized system, to provide the owner with a clear picture of expenses being incurred and revenues being generated in order to have adequate separation of duties. Therefor the use of computer programs is commended to easily verify and produce cash receipt journals and master files. Also the use of online banking is important to confirm direct deposits to minimize holding of cash since cash on hand is a risky business.

Figure 1.1: Overview of HRI Express Sales and Collection Cycle NOTES
1. All customer orders are entered in a log book
2. Weekly review of sales receipts against cash receipts by owner.
3. Payment is required before delivery.
4. Field workers create a log of orders fulfilled and taken to the front office for delivery.
5. There are no credit sales.
6. Deposits are made weekly.
7. The bank account is reconciled by the owner on a monthly basis.
8. No sales journal or cash journals are kept.
9. Duplicate sales receipts are prepared. 10. Bank receipts of deposits paid are kept on file and reviewed monthly.
11. All cash receipts are entered in a log book