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Hospitality Industry Fraud Report is an industry resource intended to educate and provide a knowledge base of frauds occurring in the hospitality industry. Each issue presents actual instances of fraud drawn from the experience of the publishers as well as reader contributions. Reader contributions (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 .
Credit Card Fraud - A New Twist
Hotel accounts receivable staff routinely view guest folios within the accounts receivable functionality of a property management system. However, in this case staff was also able to edit folios to make it appear that the credit card originally used to settle the folio was the same one credited. The credit card actually credited belonged to an accounts receivable clerk. The false credit was able to be processed and go undetected by moving the folio to a house account. The hotel controller was treating credit card credits as adjustments, requiring that both original and corrected folios be attached to adjustment vouchers. Further, the executive committee was reviewing and approving adjustments. However, there were two control weaknesses: (1) There was no review of the "Credits Without Debits Report" from the credit card processor; and (2) No one knew the ability to edit folios and mask the credit card number actually credited existed in the property management system.
The fraud was uncovered when another hotel controller was sent to help reconcile accounts receivable. While reviewing the folio of a particular account the controller noticed a small credit had been issued. The client was contacted and claimed they were unaware of the credit. The credit card processor was then contacted. It was at this point the credit card processor advised that multiple credits had been issued to one particular credit card over a three month period. In addition to the internal controls discussed above, we recommend the following:
Office Equipment Repair
The controller of a hotel was contacted by someone claiming to be from the company that handled ongoing maintenance on a piece of office equipment. The caller stated that the company had changed their equipment maintenance procedures such that instead of sending out a technician to service the machine on-site, it would be picked up and taken to their facility for servicing and a loaner machine would be left for hotel use at no charge. Subsequently, the controller received a call advising that the hotel's machine needed expensive repairs. The vendor then offered to exchange the hotel's machine for the loaner machine, with no additional payment required. The controller agreed to the exchange. A few months later the controller saw a local newspaper story stating that local police were investigating a fraud scheme wherein equipment maintenance contract holders were offered inferior quality equipment in exchange for existing equipment, with the fraudster reselling the better quality equipment at a significant profit. A review of the pertinent documentation revealed that the hotel had been victimized. This fraud relied on people being too busy to focus on a small issue when a credible scenario had been initially developed. Verifying the vendor name and that regular maintenance was due would likely have prevented the hotel from becoming a victim.
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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