MAGENS BAY MOTEL

An entrepreneur by the name of Jean Larsen recently entered into a new venture involving ownership and operation of a small, 18-room motel and caf. The motel is located in a remote area on St. Thomas. The area is popular for tourists who come to swim at the popular Magens Bay. Jean has hire you to provide advice.

Jean hired a young couple to run the motel and caf 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 motels office. The couple will also be responsible for hiring and supervising the four or five part-time personnel who will help with the cleaning of the rooms, cooking, and waiting on customers in the caf, etc. The couple will maintain records of rooms rented, meals served, and payments received (whether by cash, checks, or credit cards). They will make weekly deposits of the businesss proceeds at the local bank.

As the time approaches for the business to open, Jean is concerned that he will have little control over the operations or records relating to the motel and caf, given the day to day control is fully in the hands of the couple. He lives on St. St.Croix and will only be able to visit periodically. The distance is beginning to make Jean 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.

He needs your help to identify possible ways his motel and caf could be defrauded. He especially wants your assistance to devise creative internal control 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 caf 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 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 Jean del with your concerns?