UK: PKF urges more action to tackle £2 billion fraud problem in hotel sector

Hoteliers need to take steps to better protect themselves against fraud, a report published by PKF Accountants and business advisers and University of Portsmouth reveals today.

'The Resilience to Fraud of the UK Hotel Sector' survey – the most comprehensive study of its type ever undertaken – looks at how well the industry protects itself against fraud, highlighting where it is getting it right and identifying areas for improvement.

Using a 50 point scale, the report finds that the hotel industry lags behind the rest of the corporate world in terms of fraud resilience, achieving an average score of 25.4 points compared with 30.6 points for the private sector as a whole.

Combining the report's conclusions with the results of a separate study by the same authors, PKF and University of Portsmouth estimate that fraud could cost the UK hotel sector over £2 billion each year.

The results reveal a number of areas where hotels could improve their counter fraud activities. In particular, only 27% of respondents sought to estimate the cost of fraud or used losses estimates to make judgements about how much to invest in countering fraud - making it difficult for such organisations to devise appropriate and adequately resourced counter fraud strategies. The authors also found that less than a quarter of those surveyed reviewed the effectiveness of their counter fraud work and just 35% ensured that counter fraud staff regularly refreshed their skills. The report calls for urgent progress in these areas.

On a more positive note, hotels performed strongly in a number of key areas. For example, 88% of respondents indicated that they had a 'zero tolerance' approach to fraud and 85% had arrangements in place to ensure that suspected frauds were promptly reported,

Stuart Collins, National Hotels Partner at PKF (UK) LLP, said: "Fraud is a serious issue for hotel companies and one that has far reaching consequences for the health and financial stability of the sector, as well as the quality and price of the service that consumers enjoy."

"Reducing fraud losses is one of the least painful methods for hotels to minimise business expenditure in the current economic environment because fraud costs - unlike expenses relating to staffing, property and utilities - are unnecessary and unproductive. Moreover, as fraud costs have not historically been given a particularly high priority by management, there is significant scope for losses to be reduced in the sector as a whole."

"Given the challenging business environment, with the possibility of a double dip recession, hoteliers are advised to review and strengthen their protection against fraud. A small investment in better protection
might prove to be particularly good value in the long run."

Jim Gee - Director of Counter Fraud Services at PKF (UK) LLP, Chair of the Centre of Counter Fraud Studies at University of Portsmouth and co-author of the report - said: "The results of the study reveal that the hotel sector has a lot more work to do to improve its resilience to fraud. Separate research undertaken by PKF and University of Portsmouth indicates that average losses to fraud (and error) currently run at 5.7% of an organisation's expenditure. If this figure is applied to the sector's annual turnover of £40 billion, it suggests that hotels could be losing over £2 billion each year to fraudsters. Hopefully this figure is large enough to grab the attention of hotel bosses at a time when the sector is facing an increasingly challenging operating environment."

"The good news is that these losses can be reduced. Research shows that fraud can be cut by up to 40% within 12 months. Hoteliers need to be proactive in their approach to tackling fraud - responding and reacting to individual incidents is not enough. To successfully minimise fraud, organisations need to take steps to change human behaviour and to remove opportunities for fraudsters."

"Hotel companies analyse most of their expenditure items in great detail and introduce pre-emptive measures to improve efficiency. Fraud costs, by contrast, only rarely have the same focus - the common position has been that companies have either denied that they are affected by fraud or plan only to react after the incidents have taken place. As a result, fraud is now one of the great unreduced business costs."

'The Resilience to Fraud of the UK Hotel Sector' is published by PKF (UK) LLP and University of Portsmouth and written by Jim Gee, Dr Mark Button and Graham Brooks.