Consider and briefly describe the impact each of your proposed controls would have on the efficiency of running the business. Are the controls you generated both effective and efficient? Identify two or three changes you might make so that your controls are less costly while maintaining effectiveness.

Question

What will be an ideal response?

Answer 1

While the students will come up with many suggested controls, it is important for them to consider whether the controls implemented are cost-beneficial. In order for a control to be effective, it cannot place an undue burden on the operation of the business. If the cost of implementing a control is greater than
the cost of the possible error or fraud it helps prevent or detect, then the control is not efficient. However,
the cost of possible fraud losses should not be underestimated. With each suggested control, the owner
must weigh the associated costs and benefits before deciding whether it is effective and efficient for the
company. For example, one recommended internal control would require that receipts be provided to all
customers. The substantive cost to that recommended control would likely relate to the free meal and $10
gift certificate that would be provided, if the customer failed to receive the receipt. Another potential cost
would be incurred if customers falsely claimed failure to receive a receipt, when in fact the clerk provided
the receipt. These costs would need to be weighed against the benefit of a potential reduction of fraud.
Student's ideas on how to make their controls more efficient while maintaining effectiveness will depend on
the controls they identified in prior questions, and should be evaluated based on reasonableness of answers
in achieving these aims.