CREDIT CARD FRAUD IN HOSPITALITY

Hotel industry statistics indicate that organizations lose 4% to 5% of annual revenue from fraud perpetrated by employees and guests.

Credit card fraud can take many forms and can be perpetrated by either an outsider (guest, vendor or third-party) or an insider (employee).

Most Common Credit Card Fraudulent Activities

False Credit Card Credits - this type of fraud occurs when a guest checks out from a hotel making full payment of the balance due by credit card. After the guest leaves, the front desk cashier makes a “guest complaint” adjustment and credits the cashier’s personal credit card, even though the hotel received no complaint from the guest.

Preventative measures include implantation of internal control procedures requiring manager approval, and review of all daily adjustments, credits issued, and PMS reports for credit card credits issued without an originating debit.

Hacking and/or use of Skimming Device - This type of fraud occurs frequently in quick-service restaurants, but can also affect other hospitality businesses, hotels included.

Fraudulent Guest Credit Cards - This type of fraud occurs when the perpetrator uses a fraudulent credit card to book a hotel room, as well as to pay for charges incurred while they were a guest at the hotel. (Chargebacks)

Preventative measures include requiring front-desk staff to cross-reference the name on a credit card with that on another form of identification, such as a driver license, and then comparing it with the name on the reservation. In addition, hotels that request advance deposits should require guests to present the same credit card used to make the reservation when checking in (chip readers), and eliminating same day credit card pre-authorization usage.

Food & Beverage Void Sales, Coupon Discounts, and Comps - examples are:

A restaurant server collects cash from a guest, voids the entire check for “customer dissatisfaction” and pockets the cash.
A bartender collects cash for a drink, comps the drink for a “loyal customer” and pockets the cash.
A server apply's a coupon discount after a customer is finished paying the bill, and adds the difference to the tip and/or pockets the cash.

Preventative measures include implementation of POS internal controls requiring swiped manager approval, and procedures for manager daily review of POS reporting for voids, no sales, and discounts for each day.

Internal Audits play a key role in minimizing the potential occurrence of credit card fraud, which include expertise in understanding potential weaknesses in various POS and PMS systems, and instituting internal control procedures to minimize the occurrence of potential fraud.