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Read the following case and answer the requirements
An entrepreneur by the name of Francisco Fernandez recently entered into a new venture involving ownership and operation of a small, 26-room motel and café. The motel is located in a remote area of southern Utah. The area is popular for tourists, who come to hike and mountain bike through the area’s unique red rock terrain. Francisco has hired you to provide advice.
Since Francisco lives in northern Utah, he hired a young couple to run the motel and café 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 motel office. The couple will also be responsible for hiring, supervising, and paying the four or five part-time workers who will help with cleaning the rooms, cooking, and waiting on customers in the café, etc. The couple will maintain records of rooms rented, meals served, and payments received (whether by cash, check, or credit card). They will make weekly deposits of the business’s proceeds at the local bank.
As the time approaches for the business to open, Francisco is concerned that he will have little control
over the operations or records relating to the motel and café, given that the day-to-day control is fully in the hands of the couple. He lives almost five hours away, and will only be able to visit periodically. The distance is beginning to make Francisco a bit 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.
Francisco needs your help to identify possible ways his motel and café could be defrauded. He especially
wants your assistance to devise creative internal controls to help prevent or detect fraud.
What are your two biggest concerns relating to possible fraud on the part of the couple for the motel business? Be specific in describing the fraud that could occur. For each concern, generate two internal controls that could effectively reduce the risk related to your concerns (four internal controls in total). In addition, for each internal control, develop one test the auditor could perform to determine if that control is in place and working effectively (four tests of controls in total).
What are your two biggest concerns relating to possible fraud on the part of the couple for the café business? Again, be specific in describing the fraud, and these must be different frauds from those discussed above. For each concern, generate two internal controls that could effectively reduce the risk related to your concern (four internal controls in total). In addition, for each internal control, develop one test the auditor could perform to determine if that control is in place and working effectively (four tests of controls in total).