Fraud Costs Hoteliers £2 Billion

Fraud has become a serious issue for hoteliers – and a new study has revealed the full extent of the problem; costing the UK hotel sector £2 billion annually.

According to research from PKF and University of Portsmouth, the UK hotel sector lags behind other UK industries when it comes to fraud protection.

Fighting Fraud

In truth, this is a unique study. Never before have hoteliers got a comprehensive industry wide view of fraud and the results from the study have shocked hospitality professionals.

It has become apparent that a large section of the industry do not have access to data to help them measure the extent of fraudulent activities nor combat it.

In particular, only 27% of respondents sought to estimate the cost of fraud or used losses estimates to make judgements about how much to invest in countering fraud – making it difficult for such organisations to devise appropriate and adequately resourced counter fraud strategies.

The survey also revealed that less than a quarter of hoteliers reviewed the effectiveness of their counter fraud work and just 35% ensured that counter fraud staff regularly refreshed their skills.

Anti-Fraud Strategies

Hoteliers need to put more robust anti-fraud strategies in place. However, in some areas, hoteliers have already had some success:

88% of respondents indicated that they had a ‘zero tolerance’ approach to fraud
85% had arrangements in place to ensure that suspected frauds were promptly reported

“Fraud is a serious issue for hotel companies and one that has far reaching consequences for the health and financial stability of the sector, as well as the quality and price of the service that consumers enjoy,” said PKF partner, Stuart Collins.

“Reducing fraud losses is one of the least painful methods for hotels to minimise business expenditure in the current economic environment because fraud costs – unlike expenses relating to staffing, property and utilities – are unnecessary and unproductive. Moreover, as fraud costs have not historically been given a particularly high priority by management, there is significant scope for losses to be reduced in the sector as a whole.

Given the challenging business environment, with the possibility of a double dip recession, hoteliers are advised to review and strengthen their protection against fraud. A small investment in better protection might prove to be particularly good value in the long run.

“The results of the study reveal that the hotel sector has a lot more work to do to improve its resilience to fraud,” Chair of the Centre of Counter Fraud Studies at University of Portsmouth, Jim Gee.

“Separate research undertaken by PKF and University of Portsmouth indicates that average losses to fraud (and error) currently run at 5.7% of an organisation’s expenditure. If this figure is applied to the sector’s annual turnover of £40 billion, it suggests that hotels could be losing over £2 billion each year to fraudsters.”

Hopefully this figure is large enough to grab the attention of hotel bosses at a time when the sector is facing an increasingly challenging operating environment.

Reducing the Cost of Fraud

The good news is that these losses can be reduced. Research shows that fraud can be cut by up to 40% within 12 months.

Hoteliers need to be proactive in their approach to tackling fraud. Responding and reacting to individual incidents is not enough. To successfully minimise fraud, organisations need to take steps to change human behaviour and to remove opportunities for fraudsters.

Hotel companies analyse most of their expenditure items in great detail and introduce pre-emptive measures to improve efficiency. Fraud costs, by contrast, only rarely have the same focus – the common position has been that companies have either denied that they are affected by fraud or plan only to react after the incidents have taken place.

As a result, fraud is now one of the great unreduced business costs.

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