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

John hired a young couple to run the hotel and caf 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 caf. The couple will maintain records of rooms rented, meals served, and payments received. They will also make weekly deposits.

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

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

Required

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.

What are your two biggest concerns related to the caf part of the business. For each concern describe to controls to reduce risk.