Mr. Goldmann

Security & Safety

How to Reduce Hotel Fraud With a Highly Effective Anti-Fraud Policy

By Peter Goldmann, President, FraudAware Hospitality

Hotels, restaurants, casinos and resorts are notoriously desirable targets for thieves and con artists, mainly because of the large sums of cash flowing through these businesses. And, indeed, statistics do show that theft and fraud take a serious financial toll on the bottom lines of most hospitality entities. According to industry statistics, as much as 5% of annual food and beverage revenue is lost to fraud by hospitality companies.

The good news is that there is a lot that hotel management can do to prevent and detect illegal activity that they're not doing now.

Whether it's guests paying cash for rooms or restaurant and bar patrons paying for meals with cash, without strict controls on how that cash is handled...and by whom...and clear policies on what constitutes theft and fraud and what the consequences are of getting caught, dishonest employees will exploit management's lax controls by, among other things...

First Things First

With so many ways for employees to steal, there is no getting around the fact that formulating and enforcing a stringent employee anti-fraud policy is step one in the challenge of safeguarding your property's assets.

According to accountant, Andrew Durant of BDO Stoy Hayward in London, "The aim of a corporate [anti-fraud] policy is to demonstrate to both employees and the outside world that the company is taking the threat of dishonesty, fraud, and theft seriously.

"By issuing a detailed policy, the company clearly sets out what is considered to be dishonest and warns any potential wrongdoers that the consequences of being caught will be serious.

"The effect therefore will be to deter potential wrongdoers, thus resulting in reduced losses from any wrongdoing and reduced costs in respect of investigating any wrongdoing."

Of course, virtually every organization, especially hotels whose turnover rates are exceptionally high, will at one point or another be targeted by a minority of employees who are fundamentally dishonest and will look for opportunities to steal, no matter how effective your anti-fraud policy is.

Thorough-even aggressive-pre-employment background checking is the best way to minimize the risk of hiring such individuals in the first place. There are numerous vendors that will check job applicants' criminal histories, employment records and financial background for between $50 and $100.

At the end of the day, the major benefit of implementing an anti-fraud policy is in deterring the large percentage of employees who are basically honest, but who might cross the dishonesty line if the right opportunity comes up.

What Does a Fraud Policy Look Like?

Every hospitality company will need to incorporate its unique cultural and operational characteristics into its anti-fraud policy. However, there are several essential components of such a policy that should prove relevant to most hospitality firms across the board...

1) Definition of fraud

The policy should include a clear list of what is regarded as fraud or theft. The following list, compiled by the Association of Certified Fraud Examiners (ACFE) may be a useful guideline for hospitality companies...

• Forgery or alteration of a check, bank draft, or any other financial document
• Misappropriation of funds, securities, supplies, or other assets
• Impropriety in the handling or reporting of money or financial transactions
• Profiteering as a result of insider knowledge of company activities
• Disclosing confidential and proprietary information to outside parties
• Accepting or seeking anything of material value from contractors, vendors or persons providing services/materials to the company.2) Prevention and detection policies

3) Reporting policies

4) Investigation policies and procedures

The appropriate department will investigate reports of dishonest or fraudulent activity. The following procedures will be followed:

5) Action and consequences

Some language from one hotel company's anti-fraud policy..."When there is sufficient evidence that specific federal or state laws have been violated, the offender will be prosecuted to the fullest extent of the law. Employees who are guilty of fraudulent activity will be terminated immediately".

Enforcing Your Policy

Martin Biegelman, Group Manager of the Financial Integrity Unit at Microsoft Corp. points out that, "A detailed anti-fraud policy is great for improving integrity. But -we all know that integrity starts at the top. The CEO and other top management are responsible for setting the corporate tone and leading by example. It's too late to establish a culture of honesty and integrity when your CEO is doing the "perp walk" with federal agents.

This message has been repeated frequently in recent years as headlines about major corporate frauds perpetrated by some of the country's most powerful senior executives have proliferated.

It's one thing to declare in your company's code of conduct and employee manual that management maintains the highest standards of ethical behavior. It's quite another to prove that you mean it.

The key is to build a culture of "doing the right thing"- by not only setting the tone at the top...but also making all employees accountable for following the rules and not defrauding their employers.

To do that, you must back up your anti-fraud policy with the "Action and consequences" component of your fraud policy.

Terminating a guilty employee is often the preferred outcome of a successful internal fraud investigation. It is also the best way to send the message to the company's workforce that there is a "zero-tolerance" standard regarding employee fraud.

Peter Goldmann is the Developer of FraudAware/Hospitality, the first on-line fraud awareness training course for hospitality managers, supervisors and line employees. He is is the publisher of the monthly newsletters, White-Collar Crime Fighter and Cyber-Crime Fighter. His company, White-Collar Crime 101 LLC also is the developer of FraudAware/Hospitality, a customizable Web-based fraud awareness training course for managers, supervisors and line employees. He is a member of the Association of Certified Fraud Examiners, and The International Association of Financial Crimes Investigators. Mr. Goldmann can be contacted at 203-431-7657 or pgoldmann@wccfighter.com Extended Bio...

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