Question

BACKGROUND

A longtime client, Paris Clinton, recently entered into a new venture involving his ownership and operation of a small 18-room motel and restaurant located in an area of central Pennsylvania heavily visited by tourists. He needs your advice.

Paris hired a young couple to run the motel and café on a day-to-day basis and plans to pay them a monthly salary. They will live for free in a small apartment behind the motel office and will be in charge of the daily operations of the motel and café. The couple will also be responsible for hiring and supervising the four or five part-time personnel who will help with cleaning the rooms, cooking, and waiting on customers in the café, etc. The couple will also maintain records of rooms rented, meals served, and payments received (which can be in cash, checks, or credit cards). They will make weekly deposits of the business's proceeds at the local bank.

            As the time approaches for the business to open, Paris is concerned that he will have little control over the operations or records relating to the café, given that day-to-day control is fully in the hands of the couple. He lives more than five hours away, in Philadelphia, and will only be able to visit periodically. The distance is beginning to make Bobby a bit nervous. He trusts the couple he has hired, but he has been around long enough to know that placing employees in situations where they might be tempted to do wrong is unwise.

Paris needs your help in identifying possible ways his motel and café could be defrauded. He especially wants your assistance in identifying creative internal controls to help prevent or detect fraud.

REQUIREMENTS

l. What are your two biggest concerns relating to possible fraud on the part of the couple for the motel business? For each concern, generate two or three controls that could effectively reduce risk related to your concerns. Use common sense and be creative!

2. Are your two biggest concerns relating to possible fraud for the café business? For each concern, generate two or three controls that could effectively reduce risk related to your concerns.

3. Describe the impact each proposed control would have on the efficiency of running the business. Are the controls you generated both effective and efficient?

4. Describe the potential impact of your controls on the morale of the couple in charge of the day-to-day operations. How could Bobby deal with your concerns?

Answer 1

• AS IT IS CLEAR FROM THE BACKGROUND INFORMATION THAT THE OWNER TRUSTED THE COUPLE TO A GREAT EXTEND AND THE COUPLE USED THAT TRUST FOR THEIR OWN BENEFIT.
• LACK OF PROPER SUPERVISION AND CONTROL OVER THE HIRED WORKERS OR EMPLOYEES SHOULD CREATE A MENTALITY THAT THEY ARE LIKE THE OWNERS AND THEY CAN DO ANYTHING AS THEIR OWN.
• THE EMPLOYEES OR HIRED WORKERS WILL ONLY THINK ABOUT MAKING FINANCIAL BENEFIT FOR THEM SELF AND DOES NOT DEDICATE THEIR ENTIRE TALENTS FOR THE BENEFIT OF THE CONCERN. THIS IS BECAUSE THE CONCERN IS SET UP BY THE OWNER HIMSELF AND ANY FINANCIAL LOSS WILL BE SUFFERED BY HIM.
• IN THIS EXAMPLE COUPLES FEEL THEM SELF AS OWNERS THAT THE OWNER OR THE SUPERVISOR WILL NOT VISIT THE MOTEL FREQUENTLY.

EFFECTIVE CONTROL MEASURES

• SELECTION OF EMPLOYEES SHOULD BE UNDER CLOSED SUPERVISION AND MONITORING OF THE OWNER. INTERVIEW SHOULD BE ARRANGED BY THE OWNER AND HE MUST LEAD THE INTERVIEW. NO PARTIALITY SHOULD BE ALLOWED FOR SELECTING EMPLOYEES. AVOID OUTSIDE INFLUENCE AS FAR AS POSSIBLE.
• THE OWNER WILL NOT TRUST HIS STAFF TO A GREAT EXTEND. THERE SHOULD BE A ONE HAND DISTANCE BETWEEN OWNER AND HIS WORKERS.
• SURPRISE VISITS SHOULD BE ARRANGED TO MONITOR THE OPERATIONS OF THE MOTEL.
• FIX A TURNOVER TARGET AND PUSH THE COUPLE TO ACHIEVE THAT TARGET AND OFFER INCENTIVES.
• MONITORY INCENTIVES SHOULD BE PROVIDED BASED ON WORK.
• DO NOT ALLOW A PARTICULAR EMPLOYEE TO HOLD A PARTICULAR POSITION FOR LONG TIME. THIS WILL CREATE FRAUD.
• PROPER ACCOUNTING AND FINANCIAL SYSTEM SHOULD BE FOLLOWED.
• IMPLEMENT ONLINE CASH PAYMENT SYSTEM ,WHICH WILL REDUCE CASH HANDLING PROBLEM AND THEFT.
• ALL THE FINANCIAL ACTIVITIES SHOULD BE MONITORED BY THE OWNER.
• FREQUENT VISIT IS NECESSARY, IF YOU WANT TO GET RETURN FOR YOUR INVESTMENT, YOU SHOULD NOT BECOME LAZY .
• IN THIS QUESTION ,MAKING THE COUPLE AS YOUR BUSINESS PARTNER AND PUSH THEM TO INVEST MONEY ON BUSINESS. THEN AUTOMATICALLY THEY WILL BECOME MORE RESPONSIBLE .

CONTROL AND ITS IMPACT

HEALTHY CONTROLLING SYSTEM WILL INCREASE THE PERFORMANCE OF WORKERS AND THERE BY GENERATE PROFIT FOR THE CONCERN. SOMETIMES STAFF UNION INVOLVEMENT MAY CREATE A PROBLEM IN IMPLEMENTING CONTROL MEASURES EFFECTIVELY.   SO IF POSSIBLE, UNION AND OTHER POLITICAL INFLUENCES SHOULD BE COMPLETELY ELIMINATED. TOO MUCH FREEDOM SHOULD NOT BE PROVIDED FOR EMPLOYEES .BECAUSE IT WILL ADVERSELY AFFECT THE BUSINESS.

ALSO THE OWNER OR THE SUPERVISOR SHOULD HAVE AN INTERACTION WITH THE EMPLOYEES, COMMUNICATE WITH THEM, ASK THEIR PROBLEMS AND FIND IMMEDIATE SOLUTION.ALL OF THIS ACTIVITIES WILL HELP TO GENERATE A MIND IN THE EMPLOYEES THAT THE SUCCESS OF THE BUSINESS IS DEPENDS ON THEM AND THEY SHOULD CONTRIBUTE MAXIMUM FOR THE BUSINESS.

SO THESE ARE THE CONTROL MEASURES I RECOMMEND FOR THE ABOVE SITUATION

THANK YOU