Patrick Chen is an entrepreneur who owns several businesses. His most recent acquisition several months ago was the Imperial Hotel, located in a resort community about 300 km from Patrick’s residence. Because he is not usually at the hotel, Patrick hired a manager, Kevin Kildare, to run the hotel’s operations. Patrick’s daughter Vanessa is now studying accounting at university and asked her father if she could work at the hotel during the summer. He agreed and asked her to observe the operations at the hotel and report back to him at the end of her first week of work.

Vanessa Chen’s first job was at the front desk working with Megan Kildare, who is Kevin’s daughter. One evening, Kevin’s friends dropped by the hotel to use one of the rooms for a poker party. Vanessa noticed the following day when reviewing room cleaning reports that, even though the room was cleaned by hotel staff, no record of a cash or credit card receipt for the use of the room that night appeared on the daily room sales report.

A couple of days later, Vanessa spent some time in the hotel lounge where Michael Kildare, Kevin’s son, was the only bartender on duty during a very busy shift in the early evening. At that time, the lounge had a drink special with tequila on sale. Michael was very busy and sometimes was unable to ring drink sales into the cash register. Vanessa also noticed that he was using tequila bottles from a box under the bar instead of the ones that were on display over the bar. The following morning when the lounge manager, who works only during the day, performed the daily count of inventory, he concluded that tequila sales were not as high as he had hoped they would be given the fact that the tequila inventory had barely fallen over the past 24 hours.

Later that day, Vanessa reviewed a report showing that parking garage receipts had decreased during the past month. Kevin has resisted the installation of any automated payment systems for the parking garage because he is worried that they are not always reliable and prefers instead the more personal approach of having someone, like his nephew Tom, at the parking garage exit to collect the parking fees in cash or with a debit card. When a driver enters the parking garage, they get a ticket with the entry time and then they present this to Tom, who calculates the amount owed when exiting.

Discussion Questions

1. What control activity weaknesses should Vanessa report to her father?
2. If Vanessa wanted to determine how much money has been stolen or lost from the hotel, how could she do this? Is it possible?
3. What steps can the hotel take to reduce the possibility of fraud in the future?

Answers:

1. What control activity weaknesses should Vanessa report to her father?

• Lack of documentation: the room and service sales provided by Megan who is Kevin’s daughter when his friends dropped by for a poker party.

• Kevin’s son who is the bartender had not registered drink sales and used improper inventory

• Tom, who is Kevin’s nephew, collects parking fees. Should be regulated with an automated system to limit human error.

2. If Vanessa wanted to determine how much money has been stolen or lost from the hotel, how could she do this? Is it possible?

Vanessa could determine the amount stolen or lost with an internal review. She could cross-reference with inventory and the amount entered on paper. This would give her a good idea of how much was lost assuming she had a recent inventory taken prior to this night.

3. What steps can the hotel take to reduce the possibility of fraud in the future?

The hotel could improve by having control points across the entire business. They could improve their documentation as well as hiring those who are not family members. This causes issues and you’re usually better off hiring outsiders. They could also have segregation of duties to make sure that people know their roles and what they need to do. Along with this a good idea is to have an automated payment system to reduce loss in the parking lot area of the business.