Textbook Problem

Internal Control for Sales

Johnson Tires has three stores. Each store manager is paid a salary plus a bonus on the sales made by his or her store. On January 5, 2020, Kevin Sampson, manager of one of the stores, resigned. Kevin’s store had doubled its expected December 2019 sales, producing a bonus for Kevin of $7,000 in December alone. Jason Jones, an assistant manager at another store, was assigned as manager of Kevin’s store. Upon examination of the store’s accounting records, Jason reports that the store’s records indicated sales returns and allowances of $124,000 in the first 4 days of January 2020, an amount equal to about half of December 2019 sales.

Required:

1. CONCEPTUAL CONNECTION Explain what the large amount of sales returns and allowances suggest that Kevin might have done.

2. CONCEPTUAL CONNECTION Determine how Johnson could protect itself from a manager who behaved as Kevin likely did.