Question

Michael Wilson entered into a new business, hotel ownership, by buying a small 24 room hotel and café. The hotel is located in a remote area of Minnesota that is popular for tourists. Michael has hired you for advice.

Michael hired a young couple to run the hotel and café on a daily basis and plans to pay them a monthly salary. They will live for free in a small apartment adjacent to the office. The couple will be responsible for hiring and supervising five part-time personnel who will help with cleaning the rooms, cooking, waiting on customers in the café. The couple will maintain records of rooms rented, meals served, and payments received. They will also make weekly deposits.

Mike is concerned about his lack of control over the records and operations. Mike lives 5 hours away and will only be able to make periodic visits. Mike trusts the couple but wonders if it makes sense to place so much trust in employees.

Mike needs your help to identify possible ways that his motel and café could be defrauded and especially wants assistance to devise creative internal controls to help prevent or detect fraud.

Required

1. What are your two biggest concerns related to possible fraud for the hotel part of the business.   For each concern describe two controls that could reduce the risk.
2. What are your two biggest concerns related to the café part of the business. For each concern describe to controls to reduce risk.

Answer 1