Fraud for thought

Towards the end of last year two top London restaurants were rocked by separate credit card scams. Customers at Mezzo had up to £4,000 charged to their cards after a £400 meal, while diners at Harvey Nichols' Fifth Floor restaurant noticed that more than £4,000 had been totted up on their cards at shops in Spain after eating at the restaurant. Staff were allegedly behind both incidents.

The news triggered reactions of shock and amazement within the industry. How could such things possibly happen at such well-known establishments?

Outside the industry the truth is that, like it or not, the hospitality business has a reputation for being riddled with people on the make, ripping off either their customers or their employers.

The extent of this is illustrated by the fact that Visa recommends to its customers that they don't let their cards out of their sight in a restaurant, advising them that waiters should be accompanied to the till to check that no funny business occurs.

So why is the industry so vulnerable to fraud and scams and, more importantly, what can be done to improve this tarnished image?

The Government's Prevention of Plastic and Cheque Fraud report from June last year estimates that UK credit card losses in 1999 totalled a massive £190m. This figure, however, is just 0.117% of the card industry's total turnover. As the report says: "The primary goals of corporations are profit maximisation rather than maximum crime reduction."

The cases at Mezzo and Harvey Nichols are classic credit card scams, both illustrating why restaurant customers are susceptible to fraud. The customers' cards were thought to be "skimmed", or copied, which involves using a simple card swipe to record the card's details, which are then transferred on to another card.

But it's not just opportunistic waiters taking a couple of pounds here and there. Credit card skimming can be a highly organised business. The Prevention of Plastic and Cheque Fraud report also highlights an investigation by the City of London police, which uncovered a network of East European waiters who were skimming card data and sending it back to their home countries. Another revealed a team of Italian and Chinese waiters sending credit card information to organised crime gangs back home.

"The nature of restaurants means they naturally have transient staff," says Mike Keenan, operations director for security and fraud consultancy at the Maxima Group. "And that means that perhaps management don't do enough checks on staff before they are employed, or monitor them enough while they are there."

Another explanation, given in a 1999 report by Kevin Baker, lecturer at the Australian International Hotel School, in Canberra, is more worrying. "[There is a] reward system operating for waiters," he says. "Included in that system, alongside basic pay, free food and tips, are ‘fiddles' and ‘knock-offs', almost as if they are an accepted practice. The euphemism used for such minor fraud is ‘perks'."

A report by the Crime Prevention Council of Victoria, in Australia, estimated that nearly 80% of hotel inventory losses were a result of employee theft, although 95% of frauds referred to the police were committed by customers or guests.

Another report, by Stephen Wanhill, Professor of Tourism at the University of Wales, which appeared in the International Journal of Hospitality Management in 1994, states that practices of fraud are "condoned by management", as long as the chef or assistant manager "delivers the right percentages".

So it's not just the waiters who should be watched. According to Ian James, corporate director of fraud consultant Modus International, internal fraud checks target the wrong people and lead to a false sense of security.

"Ninety-five per cent of all fraud is committed by senior managers," he says. "Men and women who know the system intimately also know how it can be circumvented, and have the seniority to talk their way out of difficult situations."

The recent case of a pub manager caught swiping money from customer cards to the tune of £30,000 is a perfect example. Owing to poor paperwork from the company, the police didn't prosecute, although private prosecution was eventually carried out and the manager found guilty.

This example isn't rare, either. In one case of hundreds of fraud cases, a pub manager was caught taking cash from a corporate credit card kept for putting up business guests at a nearby hotel. In Florida a manager of a Ritz-Carlton hotel was caught paying himself $6,000 (£4,040) in holiday pay, while the manager of the Gulf Landing resort in Massachusetts was arrested when he converted $13,000 (£8,730) worth of resort property to his own use.

"It tends to be endemic," says Keenan at Maxima. "Once the staff know the manager's doing it, they go on the fiddle too, the manager turns a blind eye and then the whole thing is corrupt."

So what can be done? For a start, says James at Modus, call the police: "Often a decision is taken to keep a fraud as quiet as possible, not take action, or let him [the perpetrator] resign quietly. This is plainly a misguided reaction."

One of the main reasons action should be taken, he says, is to set an example to honest employees, who are likely to be more aware of what's going on than the management.

"Silent acquiescence by management is unacceptable," James says. "Honest employees will believe there is a chance that they may be blamed if something happens. Either their motivation will suffer, or they will seek other employment in an environment where crime is not tolerated."

The principal advice from fraud experts is that implementing a corporate fraud policy is as important as any other policy in the company's crisis management plan.

This plan would include the action to take on discovering a fraud, preserving evidence, allocating responsibilities, interviewing criteria, and loss recovery. There are preventive methods, too. CCTV cameras are common, and employment contracts can contain clauses which allow employers access to employees' lockers or bags - although few employers want their staff to think they don't trust them.

The best measure, according to Keenan, is to check prospective staff's references, work histories and criminal records. The recent case of a chef who falsely claimed on his CV to have worked for Gordon Ramsay, or the illegal immigrant who used a forged French identity card to get a job with Angus Steak House, show how essential checks are.

But the real solution to the problem is a change of attitude. If managers turn a blind eye to staff "perks", what does that say to the customer? As one hotel manager says: "Customers come and go in retail establishments, but in a hospitality operation guests stay for an extended period and trust us to ensure their safety. If the public realised how much employee theft goes on in hotels, their trust would be shaken."

Credit card losses

Total credit card losses in 1999: £190m

80% of hotel inventory losses are a result of employee theft, but 95% of frauds referred to police were committed by guests

Recent staff fraud examples:

Harvey Nichols hit by credit card copiers (Caterer, 14 December 2000, page 6)

Mezzo staff suspected of credit card fraud (Caterer, 7 December 2000, page 4)

Restaurateur jailed for credit card scam (Caterer, 9 November 2000, page 5)

Alleged cheque fraud at Scottish Chefs Centre (Caterer, 29 June 2000, page 5)

Illegal immigrant uses fake ID (Caterer, 6 August 1998)

Contacts

Visa: www.visa.com

Maxima Group: www.maxima-group.com

Modus International: www.vivendi.demon.co.uk

Source: Caterer & Hotelkeeper magazine, 18-24 January 2001