Question

In: Accounting

he Mountain Top Resort Community is an elegant, thriving four-season resort and community of over 1,200...

he Mountain Top Resort Community is an elegant, thriving four-season resort and community of over 1,200 single family homes, 1,000 time-share units, and a multimillion-dollar ski business. Guests visiting the resort can enjoy the indoor/outdoor water park, play golf on one of the two 18-hole championship golf courses, ski, snowboard, or snow tube in the winter on 14 trails that are all lighted for night skiing, or relax at the full-service spa. There are also three dining rooms, card rooms, nightly movies, and live weekend entertainment. The resort uses a computerized system to make room reservations and bill customers. Following standard policy for the industry, the resort also offers authorized travel agents a 10% commission on room bookings. Each week, the resort prints an exception report of bookings made by unrecognized travel agents. However, the managers usually pay the commissions anyway, partly because they don’t want to anger the travel agencies and partly because the computer file that maintains the list of authorized agents is not kept up-to-date. Although management has not discovered it, several employees are exploiting these circumstances. As often as possible, they call the resort from outside phones, pose as travel agents, book rooms for friends and relatives, and collect the commissions. The incentive is obvious: rooms costing as little as $100 per day result in payments of $10 per day to the “travel agencies” that book them. The scam has been going on for years, and several guests now book their rooms exclusively through these employees, finding these people particularly courteous and helpful.

Requirements

Would you say this is a computer crime? Why or why not?

Is this fraud? Why or why not?

What internal controls would you recommend that would enable the resort’s managers to prevent such offenses?

Classify the controls that you just identified as either preventive, detective, or corrective controls.

How does the matter of “accountability” (tracing transactions to specific agencies) affect the problem?

Solutions

Expert Solution

Computer crime is a situation when a person with a knowledge in computers also known as hacker illegally steals individual's or an organizations private information. It is also known as cyber crime. The present case is a case of computer crime. Here the employees are misusing the computer and internet during working hours. Few employees are exploiting the inefficiency on the part of management and pose to be someone else for their own benefits.This is also a case of identity theft on part of employees which is also considered as a computer crime. The  employees call in the resort and pretend to be someone else and on which they earn commission , this can be regarded as illegal sales and scam.

This is a case of fraud. Fraud is defined as a wrongful act done for financial or personal gain. Under this case employees for their personal gains are exploiting their knowledge of non- maintenance of accounts of authorized dealers for heir personal gain. Even after knowing what's happening in the company instead of reporting it to the management they are using the information for their personal benefit. Thus this is a situation of fraud on the part of employees.

Internal controls are the policies and procedures that are implemented so as to ensure financial and accounting integrity. This is done to prevent fraud. The internal controls that would enable the resort's manager to prevent such offenses are:

  • The reports and data that are printed should be not allowed to be seen by everyone. This will stop the employees to get access to the reports and data, this will stop them from misusing the information for their personal gains.This is a Preventive control as here we are trying to prevent the fraud done by employees.
  • Password should be used.This is also a preventive control. Putting a password will discourage unauthorized access.
  • Delegation of responsiblities should be made so that employees should be made responsible for the authority given to them.This is a corrective control.
  • A proper authentication should be made of travel agents before working with them.This is a type of detective control as these are designed to detect errors that can occur.
  • If in case trade is done with unauthorized dealers proper record should be maintained about them.This is a type of corrective control.

Managerial effectiveness is very important in a organization. If accountability is established then it will ensure organizational success. When person is made accountable for something he gives his best to ensure that the work is done properly. In the given situation when accountability will be established people will not indulge themselves in fradulant activities.


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