Auditing Question:
Mr. Ali Bakar has recently bought over Cameron Hotel, a small 36-room budget hotel and cafeteria located in Cameron Highlands, in the state of Pahang. Cameron Highlands is popular among local tourists and foreign visitors for its cool, temperate weather. You are the audit manager of Lum Loke & Co, Chartered Accountants, a firm that provides audit services to the other business interests of Mr. Ali Bakar. He has approached you for advise. Lum Loke & Co is not the auditor for Cameron Hotel.
The previous owner of Cameron Hotel has employed a middle-aged couple to manage the budget hotel and cafeteria on a day-to-day basis. They are paid a monthly salary and provided with free accommodation and meals. Mr. Ali Bakar intends to continue with this arrangement and recruit additional part-time workers to assist in the day-to-day operations of the hotel. The couple is responsible for recruiting, training and supervising local workers for the daily operations of the hotel, including cleaning the rooms, cooking, and waiting on customers in the cafeteria. They will keep records of income from the rental of rooms and the sale of meals and drinks, which is in the form of cash or credit card, and deposit the cash received on a weekly basis at the branch of the local bank. Following the change in ownership, Mr. Ali Bakar closed the hotel for three months to refurbish the lobby and cafeteria of the hotel and to train the new workers.
As the hotel and cafeteria is due to open for business in a few weeks’ time, Mr. Ali Bakar is very concerned that he will have little control over the operations or records relating to the business of the hotel and cafeteria, given that the day-to-day operations is fully in the hands of the couple. He lives in Kuala Lumpur, about 4 hours journey by car, and will only be able to visit the hotel once a month. The distance is beginning to make him concerned. He trusts the couple, but he also knows that it is not wise to place employees in situations where they might be tempted to commit fraud.
Mr. Ali Bakar has requested you to help identify ways that his hotel and cafeteria could be affected by fraud. In particular, he has asked for your assistance to devise effective internal controls to help prevent or detect fraud.
Required:
- Explain the key differences between “errors” and “fraud”. Illustrate your answers with three (3) examples each. You may use the facts given in the mini case above.
- Discuss four (4) of your major concerns relating to fraud in Cameron Hotel. Recommend five (5) internal controls that could be effectively introduced in mitigating the risk related to some of your concerns.
Auditing Question:
Mr. Ali Bakar has recently bought over Cameron Hotel, a small 36-room budget hotel and cafeteria located in Cameron Highlands, in the state of Pahang. Cameron Highlands is popular among local tourists and foreign visitors for its cool, temperate weather. You are the audit manager of Lum Loke & Co, Chartered Accountants, a firm that provides audit services to the other business interests of Mr. Ali Bakar. He has approached you for advise. Lum Loke & Co is not the auditor for Cameron Hotel.
The previous owner of Cameron Hotel has employed a middle-aged couple to manage the budget hotel and cafeteria on a day-to-day basis. They are paid a monthly salary and provided with free accommodation and meals. Mr. Ali Bakar intends to continue with this arrangement and recruit additional part-time workers to assist in the day-to-day operations of the hotel. The couple is responsible for recruiting, training and supervising local workers for the daily operations of the hotel, including cleaning the rooms, cooking, and waiting on customers in the cafeteria. They will keep records of income from the rental of rooms and the sale of meals and drinks, which is in the form of cash or credit card, and deposit the cash received on a weekly basis at the branch of the local bank. Following the change in ownership, Mr. Ali Bakar closed the hotel for three months to refurbish the lobby and cafeteria of the hotel and to train the new workers.
As the hotel and cafeteria is due to open for business in a few weeks’ time, Mr. Ali Bakar is very concerned that he will have little control over the operations or records relating to the business of the hotel and cafeteria, given that the day-to-day operations is fully in the hands of the couple. He lives in Kuala Lumpur, about 4 hours journey by car, and will only be able to visit the hotel once a month. The distance is beginning to make him concerned. He trusts the couple, but he also knows that it is not wise to place employees in situations where they might be tempted to commit fraud.
Mr. Ali Bakar has requested you to help identify ways that his hotel and cafeteria could be affected by fraud. In particular, he has asked for your assistance to devise effective internal controls to help prevent or detect fraud.
Required:
- Explain the key differences between “errors” and “fraud”. Illustrate your answers with three (3) examples each. You may use the facts given in the mini case above.
- Discuss four (4) of your major concerns relating to fraud in Cameron Hotel. Recommend five (5) internal controls that could be effectively introduced in mitigating the risk related to some of your concerns.
