Question
Please help me solve this problem
CASE is found in Abrecht textbook page 131, case #6
Thanks
Your assignment Joseph Gonzalez just bought a 20-room motel and coffee shop on Cape Cod. He lives in Syracuse, New York (more than six hours away) and will be an absentee owner. He hired a young couple who live on the Cape to live at the hotel and manage it for He will only visit about twice a year. Joe has high hopes for this investment to recoup his investment before he retires so he can live "a life of luxury" on the Cape from the motel's profit. Joe's friend Gordon Dewey is an attorney from the firm of Dewey, Cheatem & Howe in Springfield, MA. Gordon suggested that Joe hire you, a fraud examiner (recom from UMass Lowell), to eview the situation and offer Joe some anti-fraud recommendations to secure Joe's investment You have been told that the young couple hired to run the hotel (Bonnie and Clyde Rippimoff) will hire and manage four or five part-time employees, will have day-to-day management and control of motel and coffee shop operations, keep and maintain all sales and payment records, handle all financial transactions, a nd will make weekly bank eposits. Joe will only be involved with "big ticket" decisions regarding motel infrastructure and the physical plant. He has given the Rippimoffs authority to spend up to $10,000 for repairs or other unexpected items. Otherwise the Rippimoffs m the budget, expenses must not exceed revenues. Expenses include a sala young couple and a monthly check to Joe for $2,500 during the "season" (May through September) and $500 for October, November, December, March and April. Joe doesn't expect a check when the motel is closed for January and February even though the coffee shop will remain open (since it's a favorite breakfast spot for the "locals ust stick to ry of the .") Gordon expects you to send Joe a memo addressing the following: 1) What are the three biggest fraud risks that Joe has in this situation? 2) What are Joe's options to prevent, detect or mitigate these fraud risks? 3) What do you recommend Joe to do now? Good luck!!!
Explanation / Answer
1) Following are the biggest fraud risk that Joe has in this situation:-
a) Authority for all the financial transactions and the management with the young couple.
b) Authority to spend upto $10000 with the young couple.
c) All the custody of cash and bank with the young couple.
2) These risks can be mitigated using the following strategy:-
a) To keep the authority to spend money on repairs and capital expenditure with himself.
b) To keep custody of cash and bank other than petty expenses with himself.
c) To visit the motel once or twice a month to look around the management.
d) To verify the big expenses himself.
3) Joe should do the following:-
a) He should ask the couple to give him the custody of cash and bank.
b) He should install a system in place to know that who is working for what number of hours so that they are paid for that only.
c) To give the couple authority to spend any number of money behind the expenses but only after the approval from Joe.