Luigi of Luigi’s Pizzeria is currently a small one restaurant operation with a 20-table brick and mortar building
Luigi of Luigi’s Pizzeria is currently a small one restaurant operation with a 20-table brick and mortar building. Luigi has seen a great increase in the desire for mobile Food trucks to serve his community. As a result, he has obtained additional investor funds to grow his business and add 5 new pizza Food trucks to his business. WOW! Great Job Luigi!
His new business partners are requiring Luigi to implement Internal Controls to protect their investment. They have shown him this video:
https://youtu.be/qqK6B1cTJVU
Luigi has come to our firm to help him identify what areas need to be addressed, determine what the biggest risk areas are, and document a new internal control process to protect his business and reassure his partners.
The Committee of Sponsoring Organizations has identified 5 components of internal control, which are: (1) the control environment, (2), the organization's risk assessment process, (3), the control activities, (4), information and communication, and (5) the organization's monitoring activities.
You have been assigned to the first requirement: Identify the areas to be addressed and highlight the initial largest risk areas. You need to create a memo to the lead partner (your professor) about these 5 areas of internal control related to Luigi’s business. In each of the 5 categories, you must provide a minimum of 3 actions to be taken by the company and our firm in the creation of the Internal Control Process for Luigi’s Pizza Empire! Within the 3 actions, at least one needs to be designated as fulfilling a SOX accounting requirement.
Sample Solution
nternal Control Assessment: Luigi's Pizza Empire Expansion
To: Lead Partner
From: [Your Name/Team]
Date: 2024-01-21
Subject: Initial Risk Assessment and Control Recommendations for Luigi's Pizza Empire Expansion
Introduction:
We have reviewed Luigi's Pizza Empire's expansion plans and the COSO internal control framework to identify key areas for improvement and mitigate potential risks associated with adding five new mobile food trucks.
1. Control Environment:
- Risk: Lack of established ethical culture and code of conduct for expanded operations.
- Actions:
- Company: Develop and implement a Code of Conduct outlining acceptable behavior and ethical standards for all employees. (SOX compliance)
Full Answer Section
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- Our Firm: Assist Luigi in tailoring a generic code of conduct to his specific business, emphasizing mobile operations.
- Company: Conduct regular ethics training sessions for all staff, including food truck personnel.
2. Risk Assessment Process:
- Risk: Inadequate identification and assessment of risks associated with mobile operations (cash handling, inventory control, food safety).
- Actions:
- Company: Conduct a formal risk assessment workshop involving key stakeholders from both brick-and-mortar and mobile operations.
- Our Firm: Facilitate the risk assessment workshop, providing risk identification tools and methodologies.
- Company: Document identified risks, their likelihood and impact, and develop corresponding mitigation strategies.
3. Control Activities:
- Risk: Ineffective internal controls for cash handling, inventory management, and food safety in mobile trucks.
- Actions:
- Company: Implement secure cash handling procedures for mobile units, including limited cash floats, numbered bills, and end-of-shift reconciliation.
- Our Firm: Recommend and assist in setting up appropriate POS systems for mobile trucks to track sales and inventory in real-time.
- Company: Develop and enforce food safety protocols specific to mobile operations, including temperature control, hygiene practices, and sanitation procedures.
4. Information and Communication:
- Risk: Inefficient communication and information flow between brick-and-mortar and mobile operations, leading to discrepancies and errors.
- Actions:
- Company: Establish clear communication channels and reporting procedures for mobile staff.
- Our Firm: Suggest a centralized communication platform (e.g., online dashboard) to share operational data and updates across all locations.
- Company: Conduct regular performance reviews and meetings with mobile staff to address concerns and provide feedback.
5. Monitoring Activities:
- Risk: Insufficient monitoring of mobile operations to ensure compliance with internal controls and identify potential issues.
- Actions:
- Company: Schedule regular surprise inspections of mobile trucks to verify adherence to food safety, cash handling, and inventory management procedures.
- Our Firm: Assist in developing key performance indicators (KPIs) specific to mobile operations to track effectiveness of internal controls.
- Company: Implement an anonymous reporting system for employees to raise concerns about potential control breaches or unethical behavior.
Next Steps:
This initial assessment provides a foundation for developing a comprehensive internal control framework for Luigi's Pizza Empire. We recommend prioritizing the implementation of the outlined actions, particularly those addressing cash handling, inventory management, and food safety. Our firm is committed to collaborating with Luigi and his team to establish robust internal controls that protect his investment and foster sustainable growth.