A longtime client, Matthew Franklin, recently entered into a new venture involving his ownership and operation of a small 18 -room motel and café located in an area of southern Utah heavily visited by tourists. He needs your advice.

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

Matthew 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

1. 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. What 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 proposed controls on the morale of the couple in charge of the day-to-day operations. How could Matthew deal with your concerns?