Combating Internal Fraud in the Hotel Industry

Incidences of staff fraud are increasing year-on-year (an 18% increase alone in 2013), and hotel businesses are particularly vulnerable. Afterall, hotel staff handle sensitive customer data, cash and the personal belongings of guests. Hotel Industry Magazine asks CIFAS, the UK’s fraud prevention agency, for advice on how hoteliers can mitigate the risks of internal staff fraud.

Although internal fraud is by no means unique to the industry, in their 2012 UK Hotel Sector report PKF accountants stated:

“Hospitality has long been a target for fraudsters… cash is often freely available, particularly in bars, and there is always going to be temptation. Credit cards are also used extensively… how often have we heard of cards being cloned or charges levied against them fraudulently? There have been instances of major frauds committed by staff in senior positions who have purported to need access to significant cash amounts and who have (ultimately) been found utterly untrustworthy. It is therefore vital that companies in the hospitality industry are on their guard to protect themselves against fraud.”

With this background, it will come as no surprise that over a third of UK businesses responding to a 2011 PricewaterhouseCoopers survey reported that the largest fraud they’d suffered was perpetrated by one of their own employees.

The Cost of Internal Fraud

In 2012, the Audit Commission said that the average loss of a single internal fraud (£10,619) was 8 times higher than that of an external fraud (£1,315). And of all the businesses that were a victim of fraud in that year 49% said they had exclusively or also suffered internal fraud.

The fact is that everywhere incidences of internal fraud are continuing to rise sharply, and it is almost certain that the scale of the problem is higher than these findings suggest. Some 72% of business frauds now involve an insider.

So here’s a question; how much would the average loss of £10,619 through an internal fraud cost your business?

When an internal fraud is committed within your hotel you do not just lose the sum embezzled by the fraudster, but a variety of add-ons as well: investigation and disciplinary costs, a new recruit, compensation pay-outs, and ‘intangibles’ like the impact upon morale, reputation, customer confidence or share price. Frauds below £25,000 can incur additional costs nearly three times the size of the initial loss!

Would you be willing to pay that kind of mark-up anywhere else?

The Bigger Criminal Picture

The common perception of internal fraud is that it’s opportunistic and completely unplanned, and it can be, but more often it is systematic and may be linked to serious or organised crime and even terrorism. Criminal gangs entice, threaten or blackmail staff, or they may deliberately place someone within your hotel to facilitate crime on their behalf, and they tend to focus their interest on your customer data.

Opportunities for Internal Fraud

In a typical day your hotel will have receptionists handling sensitive customer details and payment information, often speaking with members of the public calling in off the street. There are bar and restaurant staff dealing with cash or card payments, and non hotel guests. Housekeepers access guest rooms (and their belongings), and sometimes private offices and conference suites. All this is before we mention your back office operations.

As we have seen there are numerous types of fraud that can be perpetrated by staff, but internal fraud can even include the submission of knowingly inaccurate information on a job application form, whether that applicant has been successful with you or not. 2 in every 5 CVs contain deliberate falsehoods, everything from non disclosure of a criminal record to exaggeration or fabrication of qualifications or work history.

Protecting Against Internal Fraud

So what can you do to protect yourself, your hotel, your reputation, your customers and of course your trustworthy staff?

The latter should be your first line of defence. The vast majority of your staff will be utterly dependable, but would they feel comfortable reporting any suspicions they have about a colleague or line manager? What procedures do you have in place to facilitate whistleblowing, and are staff made aware of these procedures? Would they truly feel safe and reassured in reporting anything?

Measures such as enhanced vetting, monitoring, training and data sharing are also essential in order to avoid the collateral damage that accompanies an internal fraud. The CIFAS Internal Fraud Database can save you time and money while helping you to identify and deter fraudulent activity. It is a data sharing scheme that enables you to record proven cases of internal fraud and stop the perpetrator moving unchallenged to a new employer and possibly reoffending.

You can access the secure database in order to:

  • check internal frauds recorded by other members,
  • screen job applicants or current employees,
  • and record data of identified internal frauds.

The Internal Fraud Database is not limited to temporary or permanent staff. It can also be used to vet contractors, agency workers or interns, offering you protection in these high-risk areas. It is also a vital deterrent against criminals who may otherwise target your business.

The Internal Fraud Database was designed in consultation with the Information Commissioner’s Office, participating CIFAS organisations, the Confederation of British Industry (CBI), the Trades Union Congress (TUC) and the Chartered Institute of Personnel and Development.

Email internalfraud@cifas.org.uk today to find out more, and begin to better protect your hotel from fraudsters.

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