One step forward, two steps back

Fraud examiners are always working to persuade management to search for internal fraud and adopt wise prevention controls. However, anti-fraud professionals can only give their best counsel and then work hard for a good outcome. Here are a fraud examiner’s early successes in a case and later frustrating management decisions. Regardless, he’s not daunted.

Sometimes, it seems like we’re making meaningful progress in our fraud examinations and fraud prevention, and then we encounter barriers. The efficacious resolution of a case is the end goal, but as risk managers tasked with reducing losses throughout organizations, we’re often embarking on long journeys with early successes and frustrating dénouements.

Some years back, before I was an independent consultant, I accepted an exciting opportunity to build an in-house risk management and asset protection program for a fast-casual restaurant chain (we’ll call it Bountiful Abundance) with an aggressive growth plan. The company already had hundreds of locations across multiple states. As a team of one, I began meeting with key stakeholders and visiting restaurants to determine the control systems they had in place to prevent fraud, which was just one of my many responsibilities.

In the hospitality business, comparative sales are perhaps the key metric to measure success. Also referred to as “same store sales,” this metric compares sales in a given period to that same period the year before, which shows whether revenues are growing or declining. Restaurants give managers various tools to manage the “guest experience,” including voids, comps and discounts (VCD). These tools can promote guest satisfaction — such as comping an entrée for a guest whose meal came out late — but employees can abuse them so they become embezzlement vehicles.

As I toured Bountiful Abundance restaurants, and discussed controls and brand standards with the operators, I determined that conditions probably were allowing fraud that could be widespread.