Managing fraud bribery and corruption risks in the hospitality industry

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Is your business geared to address key risks in these 3 phases Investment phase 1 Fraud scenario • Misrepresentation in the feasibility study report • Awarding franchise contract to a company with corrupt history • Relying on unrealistic budget and financial projections prepared with a fraudulent intent, to attract and siphon off investment • Project consultant empaneled through employee collusion Questions to ask • Did favoritism result in selecting the third party advisor and project consultant? Was a due diligence performed? • How secure is the brand in the hands of the business partner? • Is the site selected for investment free of legal tangles? Are there any political interests involved? • Given the complexities of the Indian environment, what is the company supposed to do where gift giving, even to government officials, is culturally acceptable and expected? Construction phase 2 Fraud scenario • Pilferage/siphoning of construction material • Inclusion of ghost employees in payroll processing documents • Bills of quantities being certified, without proper measurement of work Questions to ask • Is the project cost under-reported to match the budget? • Did the consultants fake their credentials to win tenders? Is there potential for kickbacks? • Is the construction material being diverted to a competing hotel? Is there a mechanism in place to prevent and detect quality issues? • In a race to complete construction, is the project team violating local laws? 6 | Managing fraud, bribery and corruption risks in the hospitality industry
Operation phase Front Office • Early check-in charges/late check-out charges collected in cash and not accounted for • Fictitious paid-out posted in guest folio, supported by fake invoices • Let out of “Out of order” room for cash, folio not opened in FOS F&B Fraud scenario • Buffet meals not accounted for/charged in cash at 50% discount • Underreporting of attendees/liquor sale at banquet functions • Pretext of “guest dispute” used to siphon cash in F&B/banquets 3 Questions to ask • Is the financial reporting fraudulent? Is the hotel actually incurring losses? • Are the third parties obtaining licenses for the company by paying bribes? • Does the company have robust processes and systems in place? • How effective are the anti-fraud and anti-bribery controls? • Is the procurement manager colluding with the supply vendor and buying at inflated prices in lieu of kickbacks? • Are the employees engaging in skimming schemes? Marketing • Inflation of invoices by media agency and use of additional funds to buy expensive gifts for customer’s employees • Payment made for displays for brand activation without actual renting of display/shelf space • Providing excess discounts and complimentary stays to select guests, in return for kickbacks Purchases and stores • Blacklisted vendor supplying material under a different name • Fraudulent acceptance of low quality/damaged materials • Bid-rigging, price-fixing during tendering process • Manipulation of standard yield ratios/excess stock issues to hide short receipts • Issue of stock before physical receipt of material Finance • Back office allowances of cash settlements • Cash collections from debtors knocked off as bad debts Human resources • Unauthorized amendments to payroll input master • Fraudulent payments pertaining to contractual labor • Fake experience and educational documents submitted for employment Franchise fraud • Inflated revenue reporting/under-reporting of expenses • Paying bribes to win government contracts • Collusion with competing hotel owner Bribery/corruption • Complementary rooms to government officials and their relatives • Hiring ex-government officials and using their influence for overall smooth functioning during construction period • Bribing government officials for misreporting of statutory compliance reports/permitting under reporting excisable goods • Fraudulent refund of old balances to suppliers Managing fraud, bribery and corruption risks in the hospitality industry | 7
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Page 3 and 4: The influencing factors Recent tren
Page 5 and 6: Perspectives - rationalizing fraud
Page 7: 2 Market intelligence uncovered con
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Managing fraud bribery and corruption risks in the hospitality industry

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