Assessing Internal Control Risks at Murray Interiors Ltd. (MIL)

Situation:

Murray Interiors Ltd. (MIL) is a retailer of high-end furniture. MIL has been in operation in Canada for nearly 50 years and was founded by Margaret. MIL is a family-run business, and Margaret's granddaughter Shannon is MIL's newly appointed chief executive officer and chair of the board. MIL has a December 31 year end.

MIL operates 22 retail stores across Canada and has three warehouses located in Sudbury, Ontario; Edmonton, Alberta; and Richmond, British Columbia. MIL buys the majority of its products in U.S. dollars from a manufacturer in China.

MIL has several hundred active customers. The 20 largest customers account for approximately 65% of the annual sales.

In order to finance its expansion, MIL has recently assumed a long-term loan with National Bank. On more than one occasion, MIL has struggled to make the monthly payments on the long-term loan and has come close to breaching the current ratio covenant of 1:1 imposed by the bank.

Cash is received daily through cash sales made at each of MIL's retail locations. When cash is received, it is handled by the employee who initially receives it, then is reconciled to the cash register total at the end of the business day by the store's assistant manager. The cash is deposited by the store's manager, who reviews the daily reconciliation. Monthly bank reconciliations, including for the U.S. dollar bank account, are not prepared on a timely basis, and when they are prepared, they are not reviewed.

MIL has been audited for many years by Blake Stanley, CPAs. It is now January 15, 20X7. You, CPA, work as a manager for Blake Stanley. You  have been tasked with completing the planning for MIL's December 31, 20X6, audit engagement.

Required:

Assess the Internal Control risk at the OFSL. Clearly identify the weaknesses (W), impact or implications of the weaknesses (I), and recommendations for improvement (R). Provide a conclusion on the overall risk level for Internal Controls.