Synopsis:

Rosemary Worth has a small club business named Private Fitness LLC, located in Ranchi Palos
Verdes, California which has been operating for six months. Recently, she realized her
employee, Kate Hoffman, is stealing from her business. Kate is a long-time friend and works as
an instructor in one of the classes offered by the club. Also, she contributes largely to the
business operation as her primary tasks include marketing, facility upkeeping, scheduling of
appointments and record keeping. With this, Rosemary realized that she has an operating
problem and cannot fully take over the business if Kate will be fired. Moreover, she wanted to
ensure the protection of the business assets from such cases.

Viewpoint: Rosemary Worth

Time Context: Six (6) months since the business operation

I. Statement of the Problem

Rosemary Worth needs to look into the feasible procedures and controls that she can utilize to
protect her business assets from internal risks.

II. Objective

1. To ensure that all revenues are properly recorded;

2. To assign separate duties and responsibilities for a more efficient workforce; and
3. To implement a better procedure and internal control system.

III. Areas of Consideration

The following are the areas of consideration based on the given facts of the case:

1. If employees can adapt to the new company policies and procedures;

2. If Rosemary has an extra time to monitor the club; and
3. If both Rosemary and Kate can put a boundary between their personal and business
matters.

IV. Assumptions

1. Rosemary has operation problems and cannot fully commit her time with the business
due to family responsibilities
2. Private Fitness LLC is a newly opened club and the owner has initially spent most of her
capital for the renovation of the place and other similar expenses.
3. Company policies and procedures are not properly implemented.
V. Alternate Course of Action (ACA)

ACA-1: Hire a new manager and have separation of duties

Rosemary will hire a new manager and Kate will work purely as an instructor. The new manager
will cover all the tasks assigned to Kate such as marketing, facility upkeeping, scheduling of
appointments and record keeping. With this ACA, it will ensure that revenue and expenses
recording are correctly done by a trustworthy and competent manager.

Advantage Disadvantage
Business Operations will be effectively Additional cost for the new employee
handled
Revenue and expenses will be monitored Kate may take the decision negatively
correctly affecting their friendship

ACA-2: Retain Kate as the manager and have a new bonus system

Rosemary will retain Kate’s managerial role in the club. To ensure that she would not repeat the
same act, a new bonus system will be imposed. In this new system, all the scheduled clients will
be recorded in the Online Registration System along with the revenues collected from them.
There will be a fixed fee collected from the instructors based on the number of clients scheduled
for their assigned session. Since it will be through online, Rosemary can still monitor the clients
schedule and the remitted collection remotely. Thus, Rosemary will cover the scheduling of
appointments and record keeping, while the remaining job of Kate as the manager will be
retained (i.e. marketing, facility upkeeping, etc.).

Advantage Disadvantage
Boost the revenue Regaining trust with Kate is hard
Potential internal risks will be prevented
Continued friendship with Kate

ACA-3: Distribute the tasks among the employees

Rosemary will distribute the additional tasks including marketing, facility upkeeping, scheduling
of appointments and record keeping to each instructor.

Advantage Disadvantage
Business Operations will be effectively Kate may take the decision negatively
handled affecting their friendship
Instructors will have to do extra work aside
from client’s sessions and trainings

VI. Analysis

The Private Fitness LLC has been operational for six months and an incident of theft happened.
This only shows that the Rosemary has to improve its internal control since there is no proper
revenue and expenses recording. This can be done if there is a better procedure and internal
control system.
Based on the identified Alternative Courses of Action (ACA), it will be costly to hire a new
employee or re-assign the managerial role to another employee as it entails additional salary
expense. Also, Private Fitness LLC is a newly opened club and the owner has initially spent
most of her capital for the renovation of the place and other similar expenses. Further, Kate has
been covering most of the operational duties in the club. There should then be separation and
proper distribution of duties and responsibilities for a more efficient workforce.

VII. Conclusion and Recommendation

The second course of action is recommended by the researchers which is to retain Kate as the
manager of the club and implement a new bonus system. Kate has been a valuable employee
to the company in the view of the fact that she performs multiple tasks in the business
operations. Her marketing efforts contributed to the revenues reported in the company for the
past six months. But to prevent the employee fraud from happening again, a new bonus system
will be done. There will be a fixed fee collected from the instructors based on the number of
clients recorded. To ensure a better and effective internal control, an online registration system
will be used to track the clients who are scheduled for classes/training sessions.

VIII. Plan of Action

PERSON/S TASK COST TIME FRAME

INVOLVED
Employees & Inform of the updates None 3 days
Rosemary in the new internal
control system
Employees & Re-orient the None 1 day
Rosemary employees about
their duties and
responsibilities in the
club
Employees & Discuss the new None 1 day
Rosemary process on the
revenue recording
and the logging of the
client’s schedule in
the Online
Registration system
Rosemary Monitor the None 1 month
employee’s
performance

The employees will be informed of the updates with the new internal control system. After which,
they will be reoriented with their duties and responsibilities.
With regard to the new bonus system, this will be discussed among the employees and will be
informed with the Online Registration System where they will record the client’s schedule and
the revenue collected.

Finally, Rosemary will monitor the employees conform with the new policies and procedures of
the company. A policy outlining the steps to be taken must be in place. Make sure the subject
and the consequences are both addressed in detail in the company policy.
Let employees know that any dishonest acts come with serious consequences. Advise
employees that if they know of another employee’s dishonesty and fail to report it, they can be
subject to discipline as well.