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Welcome to the first issue of the Hospitality Industry Fraud Report. It is our desire to provide an industry resource to educate and provide a knowledge base of frauds occurring in hotels, motels, resorts, restaurants, bars, clubs, spas, amusement parks, timeshares, and other hospitality industry venues. Each issue will present actual instances of fraud drawn from our experience as well as reader contributions. We hope the information presented is useful and instructive. Reader contributions of actual frauds (identity of the entities involved will be held confidential) may be submitted to David White CPA, CFE, ISHC at white@davidwhitecpa.com or David Bleser, ISHC of Hospitality Safeguards, Inc. at dbleser@hospitalitysafeguards.com .
Embezzlement
A cash embezzlement by a front desk clerk was masked by collusion between the front desk clerk and the general cashier. A front desk clerk took money from house funds and substituted a personal check for the same amount. The general cashier subsequently cashed the personal check enabling the front desk clerk to replace house funds at the front desk, then replaced the real cash given to the front desk clerk with phony money because they knew the check would bounce. The embezzlement was discovered during a routine surprise count of the general cashier's safe carried out by a new accounting department manager who took the time to examine the contents of each bundle of currency in the safe rather than assuming each bundle contained what the bills on the top and bottom (which were real) indicated. Surprise counts were conducted by the previous accounting department manager, but those counts assumed the contents of currency bundles were as indicated by the bills on the top and bottom of each bundle.
When counting cash, we recommend always examining loose and bundled currency for signs of being bogus. Consider contacting the local police or the U. S. Secret Service to arrange a training session for appropriate personnel on how to identify bogus currency. Side Businesses in A-V Equipment and Linen Rental
In a large hotel handling A-V equipment rentals in-house, the A-V Department Manager ran a side business renting out the hotel's A-V equipment. The fraud was facilitated by the fact that the hotel had never inventoried its A-V equipment; none of the A-V equipment had been marked as belonging to the hotel; and not all of the doors leading to the parking lot had surveillance camera coverage. The fraud was uncovered and reported to the hotel's fraud hotline by an employee who had been with the hotel for less than three months. During the course of the investigation it was discovered that banquet linen used by the hotel was being rented from a business owned by the food and beverage director. While banquet linen expense was under budget, rentals cost considerably more than from other vendors. The investigation revealed that the managers involved were aware of each other's activities and often used each other as alibis. These frauds went undetected for over five years. We recommend the following procedures be performed to possibly detect similar frauds:
· Compare vendor federal tax identification numbers to payroll social security numbers. · Compare vendor payment addresses to employee addresses. · Follow up on missing IRS W-9 forms. · Review accounts payable aging for large and/or consistent purchases on a regular basis. · If a purchasing program such as a Avendra is in use, closely monitor/audit purchases made outside the program. To submit actual fraud cases for possible inclusion in the newsletter or to discuss professional services, please contact:
DISCLAIMER: Hospitality Industry Fraud Report is a joint publication of David W. White, CPA, CFE, ISHC and Hospitality Safeguards, Inc. Information presented is based on the experience of the publishers, as well as information received from contributors which has not been verified in any manner. The information contained herein is designed solely to serve as a reference for the reader, and is not intended to be a substitute for professional advice based on specific factual situations. Information contained herein does NOT constitute professional accounting, tax or legal advice and should not be interpreted as such. Further, the publishers are not responsible for the content of any internet website for which a link is provided. The reader accepts the information as is and assumes all responsibility for the use of such information.
Copyright © 2007 David W. White, CPA, CFE, ISHC and Hospitality Safeguards, Inc. | ||||||||||||||||||||||||||||||||||||
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