An entrepreneur by the name of Matt Franklin recently entered into a new venture involving ownership and operation of a small, 18-room motel and cafe. The motel is located in a remote area of southern Utah. The area is popular for tourists, who come to hike and mountain bike through the area’s unique red rock terrain. Matt has hired you to provide advice.

Matt hired a young couple to run the motel and cafe 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. 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 cafe, etc. The couple will maintain records of rooms rented, meals served, and payments received (whether by cash, check, or credit card). They will make weekly deposits of the business’s proceeds at the local bank.

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

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

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

[3] Briefly 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 might Matt deal with your concerns?