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Chatter Central: Are you doing enough to prevent fraud


Long-time readers of eClub News will recognize Chatter Central as the periodic look at conversations taking place online directly involving or impacting the club industry. This highlight looks at a discussion around fraud.

The topic of fraud prevention is particularly pertinent to the McGladrey team, as this has been the subject of several recent training seminars conducted for club clients. The McGladrey professionals conducting these seminars have found the response from participants to be powerful. Feedback from staff members at clubs has been overwhelmingly positive. They have reported feeling more empowered to do the right thing in their roles and interactions with coworkers, vendors and even members. The problem of fraud runs far wider than typically thought when one hears this, the other f-word. Fraud is not always about an outright theft of club assets; there are many shades of grey.

It was an interesting coincidence to note that one of the more active online discussions recently was one that revolved around this topic with contributors sharing war stories. Many have experienced them, but how many revisit the circumstances around them to ensure they do not reoccur?

Consider these comments from a Club Advisory Council Internationale’s LinkedIn group discussion titled "Private clubs are, unfortunately, vulnerable to dishonesty. What examples are you aware of where club employees or others defrauded, cheated or stole from a club or its members? What alerted you?"

One contributor focused on employee and vendor fraud:

"Our wine cellars are easily accessible. The staff has full access and will often conduct tours and grab wine to be served with dinner. There is a potential for theft, but because the rooms are monitored and the wine is arranged so that a missing bottle is easily observed, shrinkage has remained minimal to non-existent. However, a while back, while monitoring inventory in the wine cellar, I picked up a box and realized that it felt "different." The box was sealed and did not appear to have been opened. Cutting into the box, I discovered that one bottle had been removed, a value of $80. I never mentioned the box, but placed it in my office. A day or two later the suspect came into my office asking for a raise. He was visibly taken aback by seeing the box. When I told him I would not give him a raise, he resigned – effective immediately.

"Kitchen deliveries have always been an area for loss. Purveyors will take a product refused at one establishment and deliver it to the establishment that does not complain. The purveyors learned that they could deliver to our club early in the morning before staff arrived. It is infuriating to recall the blatancy of this situation, let alone that it existed in a club that I managed. But strangely, due to circumstances I cannot address here, it took a while to resolve. When it was resolved it was immediately reflected in our food cost and quality of produce."

Interestingly another comment took a rather different tack:

"The club's House Chairman - yes, a prominent club Member - invited me to a private non-club social function at his home. Food, wine and staff were provided by the club. At the end of the evening I observed him distributing cash to the servers and kitchen crew. Curious, because the club has a no-cash tipping policy, I asked a busboy about it. "Oh yeah," he said, "That wasn't a tip, it was pay for the night. We work all of Mr. xxx's parties. We bring the food and the wine from the club and he pays us in cash, off the books." Subsequent review of the club's catering and function records and this Member's account found no evidence that the club charged the Member for the food and wine delivered to his home for this, or any of the numerous other functions he'd hosted during the two years he'd been House Chairman. The employees involved are no longer work at the club. The House Chairman has since made restitution to the club, was relieved of his membership and has moved from the city, in disgrace."

The somewhat farcical nature of the final comment to be shared here highlights the importance of talking to employees about what is right and wrong. Assumptions are sometimes made that people know and understand what is acceptable—such assumptions should simply not be made and clubs should overtly educate and train their staff that fraud is not acceptable in any of its many forms.

"In one club with a club-owned golf shop, I found the staff taking shoes for their own use and putting old shoes in the box and keeping them in the inventory stock room. One assistant pro took ten pairs in one season (he had an odd size). We did not find the problem until a new staff member came across the old shoes."

In light of this scenario, consider now to be the time to help employees avoid "putting their foot in it."

On a final note, Debra K. Thompson, CPA, CFF, CFE, a director with McGladrey who consults with businesses in a variety of industries, recently completed a book that was three years in the making, titled, White Collar Crime: Core Concepts for Consultants and Expert Witnesses, now available on Amazon and through the online store of the publisher, the American Institute of Certified Public Accountants (AICPA). Thompson worked with contributions from 16 McGladrey colleagues.