CASE STUDY #2

ZZ Cinema
Topic: Characters: Internal Control (Segregation of Duties) John, Manager of Theatre Franchise William, Assistant Manager of Theatre Diana, Staff Accountant of Franchise Jodi, Ticket seller and cashier Bob, Doorman

Diana is a college graduate with accounting as her major and is planning to take the CPA exam. She recently accepted the Staff Accountants position with the ZZ Cinema Franchise. There are 20 theatres that are owned by the Franchise in a widely spread geographic area. John is manager of all the locations of the theatre franchise and William, distantly related to him, is the Assistant Manager working solely at his location. Jodi sells tickets from a glass cage and collects the cash from patrons. At the end of the last show, he adds up the cash receipts, reconciles his sales and hands over unsold tickets and cash to William. Bob, the doorman, collects the tickets from incoming patrons, tears the tickets into two, hands over one to the patron and drops the second half into a little locked box which William picks up at the end of the day. William prepares the bank deposit slip, deposits the cash in the bank, and keeps the bank receipts and the unsold tickets in the office safe to which he has the only key. William also prepares the bank reconciliation statements and submits weekly sales reports to Diana. Of late, William has volunteered quite frequently to speed up ticket sales on crowded days by working Jodis station at the sales counter. John has not objected to this practice. During the past month William has been seen driving a fancy new Lexus to work and seen dining with an attractive blond at the towns expensive restaurants. Diana finds from Williams reports that sales have shown no change from previous weeks, even though there appears to be an obvious and significant increase in movie theatre attendance during the summer season. This puzzles Diana, who suspects this apparent discrepancy is being pocketed by William. More puzzling, why hasnt John also noticed this problem? Diana wonders if she should report her suspicions to someone in authority. After all, she has no proof. More importantly, should she go to John? He might be involved in this possible scam. What should she do?

POINT OF VIEW Diana, the staff accountant for a chain of theaters has noticed questionable activities on the part of the assistant manager at ZZ Cinema. The manager not only prepares the bank deposit slip for each evening's sales, but deposits the money, and keeps the bank receipts and unsold tickets in a safe. Should she blow the whistle?

RELEVANT FACTS 1. Diana is new on the job. 2. Diana suspects William of siphoning off the extra sales revenue. 3. She has no proof to back up her suspicions. 4. William has been consuming conspicuously. 5. John may not suspect William of wrongdoing. 6. Poor internal control and a lack of segregation of duties exist. 7. Evidently, franchise owners are not aware of the problem or trust John, who is their agent.

PROBLEMS 1. Does Diana have an obligation to protect the interests of the franchise owners? 2. What effects will her blowing the whistle without any valid proof have on William, John, and herself? 3. To what extent is Diana responsible for correcting the existing poor internal control situation? 4. Should Diana discuss the problem with John? 5. Should Diana collect more evidence against William?

PRIMARY STAKEHOLDERS Owners of the franchise John William Diana

POSSIBLE ALTERNATIVES 1. Confront William with her suspicions. 2. Talk to John about her suspicions. 3. Talk to the owners about her suspicions about William. 4. Collect more proof. 5. Do nothing.

CONCLUSION/RECOMMENDATION