Music Hotels Berhad operates a chain of 18 four star hotels located across Malaysia. Each hotel has bedrooms, a restaurant and leisure club facilities. Most visitors to the restaurant and leisure club are hotel guests; however, these facilities are open to the public as well. Hotel guests generally charge any costs to their room but other visitors must make payment directly to the hotel staff. During the year, senior management noticed an increased level of cash discrepancies and inventory discrepancies, and they suspect that some employees have been stealing cash and goods from the hotels. They are keen to prevent this from recurring and are considering establishing an internal audit department to undertake a fraud investigation. 3 The directors would like the internal audit department to have as broad a role as possible, as this will lead to recruit an internal audit department which is more cost effective.

Required:

a) Explain how the new internal audit department of Music Hotels Berhad could assist the directors in preventing and detecting fraud and error. [10 marks]

b) Describe the limitations of Music Hotels Berhad establishing and maintaining an internal audit department. [10 marks]

c) Describe additional functions, other than fraud investigations, the directors of Music Hotels Berhad could ask the internal audit department to undertake. [10 marks]