The Most Common Fraud Schemes in Hotels Today

By Tiffany Couch CEO, Acuity Forensics | July 01, 2018

It's an unfortunate reality that dishonest employees exist in all companies, and the hotel industry is no exception. Occupational fraud, which includes employee theft and embezzlement, is one of the most prevalent and costly threats to businesses today. In fact, according to the Association of Certified Fraud Examiner's (ACFE) 2018 Report to the Nations, fraud costs businesses 5 percent of their annual revenue. Fraud can occur at any level – and in every department – of a hotel, from housekeeping to food and beverage to accounting to guest services. Further, because the hospitality industry typically has high employee turnover, the risk of fraud can be exponentially greater. Occupational fraud not only negatively affects hotel revenue, it can jeopardize the entire property if service begins to slip and/or employee morale is affected.

Fraud can also be perpetrated by hotel guests, vendors and contractors. Hotel guests typically defraud the company by using stolen credit cards, stealing room amenities such as towels and bathrobes, and disputing charges that were knowingly authorized. Vendors and contractors may defraud a hotel by billing for services never received. These outside parties could also work in collusion with an insider. For example, an employee and a supplier agree to perpetrate a scheme to make sure the vendor gets the contract and the employee ensures it is approved, then receiving a kickback for the favor.

Employee fraud, however, is arguably one of the most devastating and costly liabilities for a hotel. Because every department has opportunities for employees to steal, it can be difficult to detect and investigate internal fraud because different schemes require unique methods of detection. 

Whether committed by an insider or an external entity, under common law occupational fraud schemes have three common elements, which include a false statement relied on by the employer, intent on the part of the perpetrator and quantifiable losses sustained by the entity.

Beyond the legal elements of white collar crime, there are four other common characteristics:

  • The perpetrator is a trusted employee
  • Appropriate oversight over that employee or their work is often lacking
  • Employee's lifestyle does not match their known sources of income
  • Bad bookkeeping, lack of basic reporting and other seemingly plausible business issues often mask fraud schemes
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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.