To learn more about the issue of fraud, how it affects the hospitality industry, and how to make sure you don’t become a victim of it, HFTP reached out to industry expert Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA. Jerry is director of audit services and support at HEI Hotels & Resorts and a past HFTP Global president, and he recently presented on this very topic at the HFTP 2018 Annual Convention in Louisville, Kentucky USA.
If you were lucky enough to attend his session Fun with Fraud and Enchanting Employee Embezzlement in Clubs and Hotels, you will know what we are talking about. If you weren’t able to attend (or you simply would like a refresher), here is Jerry’s expertise on recent fraud in the industry, and his advice on how to protect yourself from it.
What are actual examples of recent fraud in hotels and clubs?
During my session at Annual Convention, seven examples of frauds having occurred in clubs or hotels between June 2015 and January 2018 were discussed, including:
- “Phony vendor schemes” ($2.3 million USD fraudulently obtained)
- Vendor kickbacks ($700,000 USD fraudulently obtained)
- Embezzlement of cash ($2.4 million USD fraudulently obtained)
- Filing false payroll tax returns (costing companies $300,000 USD in additional costs)
- Filing false income tax returns, filing false property tax returns
- Fraudulent use of company-issued credit cards ($370,000 USD fraudulently obtained)
- Knowingly recording false journal entries, fraudulently issuing refunds to personal credit cards
What are some illustrated examples of internal control failures that lead to fraud?
Internal control failures are what primarily lead to fraud. The controls that would help minimize criminal activity include:
- Vendor controls (new vendor creation, vendor maintenance, vendor bids)
- Purchase order review
- Having financial statements reviewed by a knowledgeable, “second set of eyes”
- Income/revenue audit controls and review
- Credit card controls, both for the processing of refunds and the proper usage of company credit cards
- Bank deposit controls, including the timing of delivery to the bank, method of delivery to the bank, and review of physical deposits going to the bank
- Hiring controls (e.g., reviewing and performing proper background checks)
- Proper separation of duties, namely, that all accounting responsibilities should not be handled by a single employee
- Tax return reviews, consisting of review of proper documentation, proof of payment, proof of filing
In a majority of the cases discussed, observed internal control failures may have contributed to the noted fraudulent activities, the implementation of which may have helped curb the level of fraudulent activity itself.
Tell us more about the “Fun with Fraud” interactive game that attendees were able to participate in during your session.
“The Cost of Fraud: The Price is Right” interactive game is a fun way to review fraud statistics as presented by the Association of Certified Fraud Examiners in its Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse (copyright 2018 Association of Certified Fraud Examiners Inc.). Attendees who correctly or closely guessed certain statistics won a coveted prize — a 64 GB flash drive!
Statistics that were discussed revolved around the following:
- 753 cases of actual fraud in businesses with less than 100 employees
- 1,937 cases of actual fraud in businesses with more than 100 employees
- 2,690 total cases of actual fraud reported
There were nine opportunities for attendees to win the coveted flash drive, but the primary purpose of the game was to show attendees how much fraud and lack of internal controls can potentially cost a hotel or club.
What can HFTP Connect readers do to prevent fraud and make sure the correct internal controls are in place?
HFTP Connect readers can help prevent fraud by performing self-audits, by having internal audits performed, and by having external audits performed, but most of all, by being diligent. In today’s environment, where “see something, say something” appears prevalent in the travel industry and other arenas, this adage is extremely relevant in accounting. Readers can also prevent fraud by saying something to a manager, executive committee member, board member, or external auditor if they suspect any type of wrongdoing being done.
HFTP Connect readers can help make sure that proper internal controls are in place by reviewing policies and procedures, as well as by updating policies and procedures for necessary changes due to advances in technology, changes in processing systems or other local idiosyncrasies.
Do you find events like Annual Convention important for professional development — in what ways and why?
Annual Convention is an important tool for professional education and networking and is the only place, outside of other HFTP-sponsored events, where I can obtain knowledge and education specifically relevant to the hospitality industry and to hospitality finance.
Attending Annual Convention allows to me network with my peers regarding recent accounting pronouncements, implementing internal controls, and more. I can attend other professional conferences to learn more technical information, but those conferences may not be focused upon how that technical information relates to, or should be implemented in, the hospitality industry.
Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA is director of internal audit at HEI Hotels & Resorts and a past president of the HFTP Global board. He presented on the topics of fraud and employee embezzlement at the HFTP 2018 Annual Convention, which took place October 24–26, 2018 in Louisville, Kentucky USA.