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