The Asheville Citizen-Times reports that the former operator of an upscale North Carolina hotel was convicted of a four-year kickback scheme in which he received more than US $325,000 from vendors and contractors who performed services for the hotel. According to court testimony, the man and two co-conspirators fraudulently inflated invoices and shared the proceeds once the hotel submitted payment. The man faces up to 20 years in prison and a US $250,000 fine on each count.

Lessons Learned

The hotel industry is susceptible to fraud from employees, contractors, and vendors — particularly when a hotel is independently owned and operated. Not requiring additional oversight regarding financial management can render a hotel even more vulnerable to fraud. Auditors always should be alert to potential fraud risk situations where there is insufficient segregation of duties or concentration of management and financial roles under one or too few individuals.

Recent studies have indicated that the hotel industry, while highly aware of the risks and damages created by fraud, has little more than an apparent “zero tolerance” principle and exhortation for prompt reporting of fraudulent activities in place to address the problem. This industry also has been found to be less “fraud resilient” compared to other industries.

Hotels must be more proactive in protecting their operations from reputational and financial damages resulting from fraudulent activity. Proactive measures could include establishing specific anti-fraud policies and procedures, conducting fraud risk assessments, periodically monitoring activities, and leveraging internal audit to assess the business’ operations.

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