Top 15 Hospitality Fraud Red Flags

  By Chris ONeal, CPA, MBA

The most pervasive fraud in almost half of the hospitality businesses is misappropriation of assets, or in other words embezzlement and procurement fraud. The second most predominant fraud is fraudulent financial reporting. And the worst part, is that more than half of the frauds committed, were perpetrated over one to five years, before being detected.

Below is a list of red flags you should be aware of in your hospitality business:

1. No internal controls or internal controls are in place, but staff and management are circumventing them.

2. Lack of trust between internal auditor or external auditor and management.

3. Pressure on employees to manipulate results to meet management’s expectations.

4. No accounting personnel with a fiduciary responsibility to your business, like a virtual Controller or CFO who is also a licensed CPA.

5. Significant bonuses linked to target revenue.

6. Family or close friend “keeping the books.”

7. Numerous bank accounts at different bank institutions.

8. Employees who turn down promotions, without a reasonable reason for not taking it.

9. Senior management taking gifts from vendors.

10. Employee’s lifestyle is way outside his/her pay grade.

11. Bookkeeper reports to senior management, neither of which have a strong financial background.

12. Persistent rumors of employees with addictions.

13. Employees who bully others or have favorites.

14. Employee not producing information upon request.

15. Management that micromanages other employees to keep others at an arm’s length.

There are so many other red flags that could be mentioned from payroll schemes to HR fraud, to overall improper segregation of duties. A virtual Controller or CFO/CPA  at the Nealson Group could tighten up your ship, before another dollar goes walking out the door. CONTACT US today.

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