A longtime client, Paris Clinton, recently entered intoa new venture involving his ownership and operation of a small18-room motel and restaurant located in an area of centralPennsylvania heavily visited by tourists. He needs youradvice.
Paris hired a young couple to run the motel and café ona day-to-day basis and plans to pay them a monthly salary. Theywill live for free in a small apartment behind the motel office andwill be in charge of the daily operations of the motel and café.The couple will also be responsible for hiring and supervising thefour or five part-time personnel who will help with cleaning therooms, cooking, and waiting on customers in the café, etc. Thecouple will also maintain records of rooms rented, meals served,and payments received (which can be in cash, checks, or creditcards). They will make weekly deposits of the business's proceedsat the local bank.
As the time approaches for the business to open, Paris is concernedthat he will have little control over the operations or recordsrelating to the café, given that day-to-day control is fully in thehands of the couple. He lives more than five hours away, inPhiladelphia, and will only be able to visit periodically. Thedistance is beginning to make Bobby a bit nervous. He trusts thecouple he has hired, but he has been around long enough to knowthat placing employees in situations where they might be tempted todo wrong is unwise.
Paris needs your help in identifying possible ways hismotel and café could be defrauded. He especially wants yourassistance in identifying creative internal controls to helpprevent or detect fraud.
REQUIREMENTS
l. What are your two biggest concerns relating topossible fraud on the part of the couple for the motel business?For each concern, generate two or three controls that couldeffectively reduce risk related to your concerns. Use common senseand be creative!
2. Are your two biggest concerns relating to possiblefraud for the café business? For each concern, generate two orthree controls that could effectively reduce risk related to yourconcerns.
3. Describe the impact each proposed control would haveon the efficiency of running the business. Are the controls yougenerated both effective and efficient?
4. Describe the potential impact of your controls on themorale of the couple in charge of the day-to-day operations. Howcould Bobby deal with your concerns?
