When ‘Friendly Fraud’ Strikes Travel Agencies
by Cheryl Rosen / February 21, 2019
Of course, she never should have trusted Mary after that first time; an employee who steals from you once is a bad bet. But Mary’s story was so sad — and she was such a good producer.
She had been late to the bank to make the day’s deposit, and so had taken the money home, she said. Her son had stolen it. But she did not want him to go to jail. She promised to pay back every nickel and pleaded to keep her job.
Jen felt sorry for her — and, indeed, really needed her at the agency, where business was booming. Good ICs are so hard to find, and the customers loved Mary. And it was a bad time; Jen was going through a divorce, and couldn’t handle another upheaval in her life right then. Mary kept her job.
Then another agent quit, saying the stress of working with Mary was just too much. She said Mary was bad-mouthing her to customers.
That’s when Jen finally called in her CPA to take a look at the books — and without looking too closely, he found at least $2,200 was missing. Then a client mentioned the $100 booking fee she had paid Mary in cash, and Mary herself mentioned a $100 cash tip a customer had given her. Jen called the police.
We all wish Mary got her comeuppance, but actually, like many fraudsters, she did not. It turned out that Mary, who had been sent by a local temp agency that did only a rudimentary background check, had a long police record under her maiden name, including arrests for assault. Jen’s friend, a police officer in her small Midwestern town, advised that Mary was not someone you would want as an enemy, and indeed one night, Jen came home to find all her flowers uprooted and the gas tank on her car open. She dropped the charges and tried to move on.
Today, Mary has her own travel agency just down the road from Jen’s, with a similar name. Occasionally a customer will tell Jen that she booked a vacation there, not even realizing that Mary didn’t work for Jen any more. Even now, Jen shared her story with Travel Market Report only under the condition that we not mention her name, her agency name, or even her city.
“If it happened right now, I probably would press charges,” Jen said. “But it was such a difficult time for me; I was going through a divorce and moving my office, all this was going on leading up to the week we were supposed to move.
“Now my vendors are calling on her; she is still stealing from me; she’s taking business from me still and there’s nothing I can do about it.”
Still, life is good, Jen says. She was just voted the number one agency in her town; she has a new IC who is “fantastic and the clients love her. There is a happy ending — but I am very over-suspicious on everything now.”
Fraud is more common than you might think
No agency is immune to “friendly fraud” by employees, says Louise Gardiner, a former Carlson Wagonlit executive and agency owner herself, who sits on ACTA’s Canadian Fraud Prevention Board. “I think people don’t understand how much fraud happens,” she says.
One of the biggest cases she recalls involved another great producer — “those are the ones you least suspect.”
The fraudster here was an expert in groups, and his method was one big Ponzi scheme. He told his agency and his customers that the easiest way to handle payments was to deposit all checks into the agency account so he could pay the tour operator for all the expenses and fees with a single agency check. So, for one group of 20 clients he deposited 20 checks in the agency account and wrote himself a check for $20,000; then he used the payments from the next group to pay the tour operator for the first, and then the payments for the third to pay the second, and so on.
In the end, he got caught when he used a payment from a customer traveling on a Gogo Vacation to pay for an Apple Vacation, and the customer called the agency to ask why the vendor had changed. By then, “he had done this multiple times, and it was hundreds of travelers and hundreds of thousands of dollars, because it had been going on for two or three years,” Gardiner said.
How to prevent fraud in your agency
Gardiner offered these tips to protect your agency from friendly fraud:
- Do everything you can to vet ICs and employees, and especially accountants, before you hire them. Make sure you hire people who can be bonded, and do a police check and a full credit check on all potential employees. The $200 or $300 it costs “can save you the tens of thousands of dollars if you hire someone who’s creative in their accounting.”
- Have a second set of eyes look at your files. In the accounting department, for example, you might have a part-time bookkeeper come in a couple of days a week. It’s very easy for bookkeepers to void invoices and pocket cash, or take the credit card number, get a credit and then write themselves a check. Make sure as many people as possible touch the file, and make sure everyone knows that someone will be spot-checking their work.
- Watch your salespeople. Look at your closing ratios for extra items like pre- and post-cruise excursions and trip insurance. If, on average, your consultants sell insurance 20 percent of the time, for example, but all of a sudden one agent is selling insurance only 5 percent of the time, look into it. There could be a valid reason; perhaps they are shy about upselling and just need a little training. But you might want to start diving a little deeper, and start sending emails out to customers directly, saying, “I see you didn’t purchase insurance, please let us help with you with that.” You just might start seeing people saying, “Oh yes I did.” And again, make sure everyone knows that is your policy.
- Count the cash in your safe regularly. Even today, about 3 percent of all travel is purchased in cash, and some ethnic communities shun credit cards altogether. Then there are traveler’s checks and petty cash. People have a tendency to borrow cash and return it; checking it will point to people you might want to watch.
“In my 40 years in the business, I spent 25 years in a brick-and-mortar agency, and I’ll tell you there were multiple occasions — at least half a dozen — where I had issues with staff fraud,” Gardiner said. “Friendly fraud can be pretty significant, and it can put a small agency out of business.”