Homewood Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so turnover is high. Assistant manager/ controller Terry Peake asked the new bookkeeper to help prepare the hotels master budget. The master budget is prepared once a year and submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel's performance. These performance evaluations affect hotel managers' bonuses and they also affect company decision which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Peake asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Peake responded that hotel manager Clay Hipp told him to do this when he began working at the hotel. Hipp explained that this budgetary cushion gave him flexibility in running the hotel. For example, since company headquarters tightly controls capital improvement funds, Hipp can use the extra money budgeted for labor and supplies to replace broken televisions or pay "bonuses" to keep valued employees. Peake initially accepted this explanation because he had observed similar behavior at the hotel where he worked previously.

Put yourself in Peake's position.

1. How should Peake deal with the situation?

2. Explain why or why not he should do this. Give specific consequences and examples of what could happen- BE UNIQUE.