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

Question

What will be an ideal response?

Answer 1

Because this assignment is designed to encourage students to use their intuition and common sense in
designing internal controls, there will likely be many different responses with respect to possible frauds
in the motel. Below are some of the more obvious concerns:
The couple could steal some of the revenue collected from the rental of motel rooms.
The couple could allow friends/family to stay in the motel without charge or at an unapproved
discount.
The couple might keep false records that do not accurately show the performance of the motel.
The couple might record personal expenses as expenses of the motel.
With respect to the concerns listed above, below are some possible controls that could effectively,
but with varying levels of efficiency, mitigate the possibility of fraud at the motel:
Require the couple and the cleaning staff to keep separate records of the motel’s occupancy and
periodically check to make sure these records match. The cleaning staff could directly mail a copy
of the cleaning reports to Francisco on a weekly basis. The couple’s occupancy records should
match with the cleaning staff’s records of rooms cleaned.
Establish a set of policies and procedures that require good record keeping and that clearly specify
appropriate uses of motel resources.
Require all checks (including payroll) over $500 to be signed by Francisco.
Require a bank account ledger to be kept on all deposits and checks. Francisco could use this
information along with the monthly bank statement, which could be sent directly to him from the
bank, to perform the monthly bank account reconciliation. An imprest bank account could also
be used.
During his periodic visits to the motel, Francisco can review the records and other evidence of the
motel’s expenses to verify everything was used for legitimate business purposes.
Require receipts to be given to all customers and that a copy of all receipts be kept at the motel.
Require all checks, when received, to be immediately stamped with information instructing that
the check be deposited only in the motel’s account.
Install a security camera that continuously records a view of the customer and register areas
Hire an assurance provider to perform periodic, unannounced “independent checks.”