387.3: Security and Loss Prevention Management Third Edition Chapter 8 Case Study 1 Points of Internal Control at the Eastwick Resort Scenario #1Purchasing Percy Purveyor, a hotel supplier, sat opposite the general manager of the Eastwick Resort, Guy Thorpe. Percy was meeting with him to satisfy his curiosityand to air a grievance. "I've been in business in this area for a few years now, Guy, and I know my competitors' products and prices well. Your property has been using Electrotel products all its life, and I know for sure that my goods are of better quality than theirs. Our price ranges are pretty close. I'm dying to know what kind of discount they're giving you to make you so faithful to them all this time." "Discount? None but the usual one for the volume we purchase," said Guy. "Not even a discount for timely payment?" "Well, yes, that too, but those are the only two. Why are you so surprised?" "That makes Electrotel's deal with you even worse. My volume discount and discount for timely payment are even better than theirs, and my rates are still comparablefor a better product." Percy leaned back and looked thoughtfully at Guy. "Your purchasing agent shows only a hint of interest when I make a pitch; it seems like he's just not listening. None of my solid arguments for considering my company's products reach him. It boggles my mind that someone could consistently choose a clearly inferior series of products at higher prices. Has your customer base changed to warrant lower-end products?" Guy bristled. "Certainly not. This remains a property for the business traveler and upscale leisure market." Percy shrugged. "It was just a thought. Your purchasing policies mystify me." "I have noticed that our property lags behind comparable ones in purchasing efficiency," mused Guy. "By more than five thousand dollars some months. I'll tell you what: Let's meet again at the end of the month and talk about your products some more. Between now and then, there's some research I'd like to do." Scenario #2-Check Cashing The Eastwick Resort received two returned checks from the bank this week. One was a personal check for $250 that was dated March 18, and the hotel had tried to cash it March 17; and the other was a corporate check for $1,000 The corporate check looked valid, with two signatures by financial officers and "Travel" in the memo space. When hotel staff called the corporation, they found that the check was indeed valid but only for authorized corporate agents, and the guest the hotel had hosted was not authorized. Furthermore, the guest tricked the hotel into giving him almost $860 in cash by saying that though the corporation had prepaid his expenses for a week-long stay, he was going to leave after one night and would like to be reimbursed for the difference. Scenario #3Payroll Almost all the housekeeping staff at the Eastwick Resort are part-time employees, and turnover is high. Recently, payroll expenses have increased significantly, but the general manager believes that the actual number of employees has dropped. When Guy Thorpe calls in his housekeeping manager, Jay, even Jay doesn't know for sure how many room attendants currently are (and should be) on the payroll. Some are on leave for various reasons, some have made it unclear whether they still want to work for the property, and so on. "We may have ghosting going onsomeone could be setting up fictitious employees on the payroll and collecting their 'wages," Guy tells Jay Scenario #4Linen Loss The housekeeping department at the Eastwick Resort has been losing six to eight sheets per week. Jay and his assistant normally take inventory monthly, but they started taking it weekly when they noticed losses. Jay decided that the volume of loss is too high and too consistent to be attributable to guest theft, so he turns his attention to employees. Scenario #5Room Charges Celia Sly has just treated several of her close friends to a hearty lunch at the Eastwick Resort's restaurant. When the server presents the check, Celia asks her to charge it to room 213. The server agrees to take care of it. Scenario #6Cash Drawers The restaurant at the Eastwick Resort has been trying a new system of distributing cash drawers. In an effort to promote cooperation and to create an atmosphere of trust with and among its employees, it has made all three cashiers on a given shift responsible for all three cash drawers the restaurant uses. Managers hoped that cashiers would develop team spirit and that they might prevent other cashiers from stealing. This system worked fine at first, but recently, the cash drawers have been short by a total of about $20 after every shift. The cashiers have become suspicious of each other and have complained loudly to managers. Discussion Questions 1. For each scenario, what policies and procedures could be implemented to prevent the type of loss concerned? What can managers do to deal with the situation before them? 2. Which of the scenarios would require action from the security department and which would require action from other departments? 3. Suppose that the Eastwick Resort's profit goal was 12 percent. If the operation managed to recover none of its losses from the events described above, how much would the operation have to achieve in sales to recoup its losses? Use the figures given below: $5,000/month X 12 months = $60,000 $250 + $1,750 + $50 in fees = $ 2,050 $200 in stolen wages per week X 52 weeks = $10,400 Scenario #1 Purchasing Scenario #2 Check Cashing Scenario #3 Payroll Scenario #4 Linen Loss Scenario #5 Room Charges Scenario #6 Cash Drawers $65 in lost sheet value per week X 52 weeks = $ 3,380 $85 meal X 52 weeks = $ 4,420 $20 X 14 shifts/week X 52 weeks = $14,560 Case Number: 3875CA The following industry experts helped generate and develop this case: Wendell Couch, ARM, CHA, Director of Technical Services for the Risk Management Department of Bass Hotels & Resorts; and Raymond C. Ellis, Jr