Fiona Hotston Moore, Ensors Chartered Accountants
All businesses face the risk of fraud with typically one in four businesses suffering losses due to fraud every year and the hospitality sector, including hotels, is no exception.
In fact, because the sector typically has high staff turnover and cash takings, the risk of fraud is increased. It’s reported that losses in the hospitality sector can be as high as 8% of turnover.
Fraud can be perpetrated by your guests, suppliers or staff.
Fraud by guests tends to involve the use of stolen credit cards or theft of the hotel property.
Fraud by suppliers can include:
- Fixed or cartel pricing;
- Bribes to employees;
- Unauthorised use of assets;
- Non-disclosure of conflicts of interest.
Fraud by staff can include:
- Falsified references or fraudulent CVs;
- Payroll fraud including failure to remove ex-employees, fraudulent sick claims or forged overtime;
- Theft of business assets including stock or cash takings;
- Forged expense claims;
- Misstated financial results possibly to inflate bonuses;
- Favouring suppliers who offer inducements;
And typically, if fraud goes unchecked the perpetrator will get greedier so what starts as “petty” theft can quickly escalate into significant sums.
So how can you prevent fraud taking place or detect if it has occurred?
- Segregate duties across all operational aspects of a business including payroll, purchasing, sales and accounts.
- Regular inventory and stocks checks including random unscheduled checks.
- Carry out reconciliations and follow up differences (even the small ones).
- Implement physical controls and IT security.
- Put a formal process in place to support ‘whistle blowing’.
- Have regular internal audit checks. These can be carried out by an external audit firm if you don’t have the skills in house.
- Train your managers.
To conclude, the typical internal fraudster is, sadly, the “loyal” and “hard working”employee who has worked for the business for many years and is trusted. When personal circumstances change, and where the opportunity exists, employees may perpetrate fraud often rationalising their actions. If fraud is suspected we recommend prompt investigation by an independent party who can work alongside your HR function.
For more information on how to investigate internal fraud please contact Fiona Hotston Moore at Ensors Chartered Accountants.