Managing fraud bribery and corruption risks in the hospitality industry

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Foreword India’s rich history, diverse culture, variety of languages, landscapes and rituals continue to fascinate travelers. This has prompted an increased flow of global tourists which in turn has made companies realize the tremendous business potential available in the country. Many companies have already invested and/or are continuing to invest in the Indian tourism and hospitality sector. This sector is the third largest foreign exchange earner and among the top 15 sectors in India that attract the highest foreign direct investment (FDI). The Indian hospitality industry falls within the spectrum of the tourism and hospitality sector. With India’s rising prominence as a preferred tourist destination, growth in investment and enhanced role of technology, the sector is aptly poised for growth in the coming years. Global players have made long term plans to scale up their India operations, with these forays expanding to include Tier 2 cities. To boost this sector, the Government of India has also taken several initiatives, such as Electronic Travel Authorization, medical tourism, five-year tax holiday offered to 2,3, and 4 star category hotels located around select UNESCO World Heritage sites, 100% FDI through the automatic route, formulation of National Tourism Policy, and so on. While the sector is growing, companies operating in the hospitality industry face an increased exposure to fraud, data theft and bribery and corruption risks. B | Managing fraud, bribery and corruption risks in the hospitality industry
The influencing factors Recent trends in the hospitality sector in India Rising demand and innovation: Demand continues to rise, flowing from cross-border business, economic and commercial activities; the rise in disposable income (which drives domestic travelers); improved infrastructure and transport facilities; the advent of new locations; and technological advancements. The following factors too have played a significant role in the uptake within the industry: • Millennials (also known as the Millennial Generation or Generation Y) have become the fastest growing customer segment within this industry. • Rising use of social media by individuals and online travel agents is giving rise to tracking of online behavioral analytics, performance and perception on social media platforms and review sites. • Mobile apps are increasingly being used to engage with guests at the touch of a button. Newer processes include mobile check-in facilities, door control via mobile phone interfaces instead of a card key, etc. • New revenue segments such as Meetings, Incentives, Conferences, and Events (MICE) are being focused upon to maximize revenue. Hotels are also introducing innovative offerings in terms of design, services and stay. They are promoting concepts such as “healthy holidays,” offering 24*7 Yoga tutors, Yoga books, the option to use olive oil in meals, Ayurvedic massages on the spa menu, soundproof meditation rooms, etc. Changing operating model: There is rising preference toward management contracts or a franchise model rather than owning and constructing hotels. The option of leasing a hotel for a long timeframe is also steadily increasing. Additionally, there is an increase in Indian companies investing in international markets. Web of taxes and approvals: The numerous requirements on this front, governing the hotel industry can be segregated into three phases: • Construction and commissioning of hotels (more than 60 approvals) • Operations and management • Taxation and regulatory compliance Cost reduction avenues: Power, manpower and food and beverage (F&B) are the three main cost areas (at least 75%) in operating a hotel. Hotels are therefore coming up with innovative models to reduce costs, such as outsourcing non-guest facing operations, minimizing energy wastage consumption by adopting a “green” building approach and enhancing in-house employee training capacity. Rising fraud, bribery and corruption risks: Due to heightened customer satisfaction requirements, intense competition and squeezed margins, the sector is seeing a rise in instances of employee and third party frauds with visible impact on profitability. Instances of bribery and corruption – right from construction approvals to entertaining government officials to win long-term room contracts – are mounting. Managing fraud, bribery and corruption risks in the hospitality industry | 1
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Managing fraud bribery and corruption risks in the hospitality industry

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