Duncan Colvin, Venners Consultant


Are a lack of financial controls allowing fraudulent activity in your business?


Fraudulent activity in BarHow do you monitor progress in your pub, restaurant or hotel company? What about tracking falls and rises in business revenue and expenditure? In our experience, hospitality businesses both big and small, often struggle to maintain these vital business health checks. The most common reasons being: weak controls and an inability to refer to essential data because of ineffective reporting.


So, today I want to help you identify whether your business is suffering from a lack of control. I’ll also cover how this is intrinsically connected to a lack of transparency in terms of reporting and data capture. By the end you’ll be able to recognise some of the warnings of the dangers associated with not having sufficient controls in place, as well as a couple of pointers on how to address these dangers.



Tracking performance


Controls and reporting play a particular role in hospitality businesses, as they are set apart from others by their cash flow. A healthy pub, restaurant or hotel business should benefit from positive cash flow.


Revenue is largely collected in advance of bills being paid. Our inflexible VAT status (that’s a blog for another day) revolves around us collecting a pool of cash for a quarterly reckoning.


This rather unique cash flow state means that an owner can quickly lose track of a business’ performance if just relying on the bank balance as an indicator of success. Without daily, weekly and monthly reporting, the business performance and profits cannot be tracked.


Transaction Fraud in Restaurant

Monitoring Cash Flows


Indeed without the reporting there is opportunity for an unscrupulous manager to take advantage of the cash balance and divert funds unnoticed for personal gain.


Without revealing sensitive details related to cases of fraudulent activity that Venners Consulting Discovery Visits have uncovered in the past, it’s safe to say that each occurrence has been as a result of a business owner placing too much trust in a single individual and a lack of checks and balances.


Death By Cash Flow


Fraudulent activity by management is particularly painful to a business. The owner has placed trust in an individual that is subsequently betrayed and there is a body of staff who may look up to the manager for direction and guidance.


Invariably the manager will bring in junior management or staff to assist and by involving them in the deception, ensure an added level of cover from players reluctant to admit their own small part.


A fraudulent manager will look to cause as much havoc over a period of time as possible and is aware that the clock is ticking before the losses become apparent, often setting themselves a timeline for departure from the business. Redirecting deposits for future events or payments to suppliers will inevitably come to light, but our fraudster will have long since left your business, leaving you with losses and embarrassment to your business’ reputation.



What to Watch Out For


Fraud in RestaurantFraud can happen at both ends of the business. Revenue can be miss-reported, or cash sales simply never reported at all or covered up. There are also many opportunities to be aware of if your expenditure is not fully monitored. Below are some of the questions you should be asking. The answers to which will give vital warning signs to just a few of the dangers you might come across:


Does the payroll match the rota?

This might seem a little over the top, but there are occurrences where a manager will create a phantom employee. The extra ’employee’ whose salary payment then gets processed along with every other hard working employee will in actual fact be redirected straight into the fraudulent manager’s bank account. Sometimes, it’s not quite that menacing, it might only be a one off occasion at an event your business put on, or the occasional casual wages that haven’t been processed honestly.


Are all your suppliers genuine?

Some agreements with suppliers will include retro discounts or bonus vouchers which you might not actually be aware of. Are you receiving the money owed to you?


Are the petty cash claims accurate?

It’s important to note that the invoices to smaller trader’s are official. If they are just handwritten receipts for goods or services that may not have been received alarm bells should start ringing.



What Can You Do?


If a business owner puts too much distance between themselves and the operation, fraudulent activity becomes significantly more likely, mostly because of the free reign perpetrators get to commit fraud without being spotted. The first line of defence is to ensure that the management of the operation is separated from the management of the business by a reporting structure. The reporting structure will then naturally develop a series of controls that ensure its accuracy. The basics require control over revenue reporting, supplier payments and payroll management:


  • Ensure weekly business is fully recorded and that each entry can be justified by retained till information. Under-banking for petty cash should be justified weekly with agreed limits on spend.
  • Supplier contracts should be signed by accounts or owner. If no formal agreement made, then an authorisation system should be introduced to confirm payments.
  • Payroll should be controlled by an accounts office, or owner, separate to the operations management. Signed time sheets should be required before payment and staff files should be held securely with a check list made to ensure all files hold required information.


These may appear to be basic controls but all too often owners delegate responsibilities to a trusted manager, only to be defrauded over time.


Venners Consulting has assisted businesses in all sectors of the industry to install reporting procedures and to introduce robust controls. These make a business stronger and more resilient to fraud.


Death by cash flow is a painful and slow experience that often stems from fraudulent activity. An early call to Venners Consulting can stop the rot and identify the issues. Get in touch with our consultants today for a free 30 minute consultation. Fill in the form to get yourself booked in.