THE JOURNAL OF HOSPITALITY FINANCIAL AND TECHNOLOGY PROFESSIONALS

Fall 2013Volume 28, Number 4

Labor Management StrategiesFraud Case StudiesFive Ways to Reduce SAQ ScopeTake Control of Your F&B Inventory

Plus: Building a Mobile App; HFTP Volunteer Opportunities; 2013 Paragon Award; Profile of Incoming HFTP Global President Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA; Student Chapter Profile: University of Nevada

The Bottomline 3

THE JOURNAL OFHOSPITALITY FINANCIAL AND

TECHNOLOGY PROFESSIONALS

Volume 28, Number 4

18 Labor Management and Productivity StrategiesBuild a picture of your property's activity patterns to schedule to demandBy Mike Flint

22 Take Control of Your F&B InventoryThe critical information an automated inventory system provides, plus the efficienciesand productivity it supports, will positively affect your bottom line over and overBy Jay Williams

26 What Dangers are Lurking in Your Hotel’s Spreadsheets?While Excel is an invaluable tool, the use of it must be carefully managed, for it is all too easy for an error to creep into a spreadsheet and remain undetectedBy Sal Galioto, CHAE and Mike Baldinger

30 Case Studies of Fraud in the Hospitality IndustryA retrospective of how real frauds could have been preventedBy Anna McFarland , CFE, CHAE, CHTP, CPA and Phil Newman, CPA

34 Five Ways To Reduce SAQ ScopeReducing the scope for the PCI DSS Self Assessment Questionnaire (SAQ) ultimatelyboils down to reducing the areas in which payment card data touchesBy Gary Glover, CISSP, CISA, QSA, PA-QSA

38 Hospitality Software: Value Proposition Or Fashion Statement?To realize technology benefits, software must be viewed as a set of tools and strategies that are meant to allow the organization to create and sustain a better alignment with its business environment By Cristian Morosan, Ph.D.

41 The Managerial Flash Sales DashInterviews with 46 industry professionals experienced with flash sales reveal the pros and cons to this quick distribution method.By Katerina Berezina, CHTP and Kelly Semrad, Ph.D.

5 Between the LinesA Year to Remember — This past year has been notable for great partnerships and continued growth

6 Q&A from the Research InstituteHospitality App Strategy — Details to consider when building a mobile application

8 Business Across the Globe Focus on China

10 HFTP News & NotesA Look at HFTP Student Chapters, Including a Profile of the University of Nevada, p 10Develop a New Skill Set as an HFTP Volunteer, p 12Knowledge Back: Can You Answer This CHAE Question?, p 13Profile: 2013 – 2014 HFTP Global President Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA, p 14Profile: 2013 Paragon Award Winner Joe McInerney, p 16

HFTP® and HITEC® are registered service marks of Hospitality Financial and Technol-ogy Professionals. GUESTROOM 20X is a service mark of Hospitality Financial and Technology Professionals.

Submissions and InquiriesIndividuals interested in submitting an article for publication should contact the editor. The Bottomline is a peer review journal. All materials submitted for publication are reviewed by members of the editorial review board or recognized experts in the field.

The Bottomline (ISSN 0279-1889), the jour-nal of Hospitality Financial and Technology Professionals, Inc., is published bimonthly with two special editions by HFTP®. Copy-right © by Hospitality Financial and Technol-ogy Professionals. All rights are reserved. All opinions expressed herein represent the views of the authors. The Bottomline and HFTP disclaim any responsibility for views expressed or statements made in any articles published. HFTP disclaims any liability with respect to the use of or reliance on any such information. The information contained in this publication is in no way to be construed as a recommendation by HFTP or any industry standard, or as a recommendation of any kind to be adopted or binding upon any member of the hospitality industry. Written consent must be obtained from HFTP before reprinting articles. Subscription fee of $30 for HFTP members is included in the membership fee. HFTP is headquartered at 11709 Boulder Lane, Suite 110, Austin, Texas 78726. Periodicals Postage Paid at Austin, Texas. POSTMASTER: Send address changes to The Bottomline, 11709 Boulder Lane, Suite 110, Austin, Texas 78726, (512) 249-5333.

CONTENTS

F E A T u R E S

D E P A R T M E N T S

F A L L • 2 0 1 3

4 Fall 2013

THE BOTTOMLINE STAFFFrank Wolfe, CAE

Executive Vice President/CEO Frank.Wolfe@hftp.org

Eliza R. Selig Editor/Director of Communications

Eliza.Selig@hftp.org

Jennifer Lee Advertising Sales / Director of Marketing

Jennifer.Lee@hftp.org

2012–2013 HFTP OFFICERSPresident

Raman P. Rama, CHA, CHTP, CHAE JHM Hotels

Greenville, SC

Vice PresidentJerry Trieber, CPA, CHAE, CFE, CFF, CGMA

Crestline Hotels and ResortsFairfax, Va.

TreasurerDaniel Conti Jr., CHAE, CAM

The Ritz Carlton Golf Club & Spa, JupiterJupiter, Fla.

SecretaryIan Millar, CHTP

Ecole Hoteliere De LausanneLausanne, Switzerland

Immediate Past PresidentLisa Funk, CHAE

The Dow Hotel Company Seattle, Wash.

2012–2013 EDITORIAL ADVISORY COUNCIL Chair

John Burns, CHAHospitality Technology Consulting

Council:

Daniel N. Conti, Jr., CHAE, CAMThe Ritz Carlton Golf Club & Spa, Jupiter

Ab M. Echenberg, CHAE, CHTP AME Consulting

Mehmet Erdem, Ph.D, CHTP University of Nevada, Las Vegas

Sal C. Galioto, CHAE Hyatt Hotels Corporation

Shelley Hooey-Jones Pomeroy Group

Heung Michael Kwag, Ph. D., CHA Boston University, School of Hospitality Administration

Ian Millar, CHTP Ecole Hoteliere De Lausanne

Raman P. Rama, CHA, CHTP, CHAE JHM Hotels

Arlene Ramirez, MBA, CHE, CHAE ADR Hospitality Consulting

Kaeko Shirasu-Bailey, McGladrey, LLP

Franklin John P. Sikich, CPA, CHAE Franklin John Patrick Sikich, CPA

David Vega Willow Ridge Country Club

Tanya Venegas, MBA, MHM University of Houston

Paul A. Willie, CHAE,CHTP,CHA,CMA Niagara College

Jessica Vint, CHAEThe Hotel Group

11709 Boulder Lane, Suite 110 • Austin, TX 78726–1832+1 (512) 249-5333 • (800) 646-4387 • Fax +1 (512) 249-1533

www.hftp.org • www.hitec.org

ProLinksProLinksWebinars

HFTP

ProLinks Webinars offer participants a chance to engage and connect virtually with innova-tive thought leaders on the most relevant topics to the hospitality industry. Enjoy presentations from the comfort of your own computer while interacting not only with the speaker, but other attendees from all over the globe.

Get Started

Visit the Membership/ProLinks section of the HFTP web site at www.hftp.org to view the upcoming webinar schedule.

Archived Sessions

ProLinks Webinars are recorded and available to members for viewing on demand. Archived topics include e-commerce, millennial learn-ers, green IT, Wi-Fi and more.

The Bottomline 5

A YeAr to rememberThis past year has been notable for great

partnerships and continued growth

Raman P. Rama, CHA, CHTP, CHAE is vice president and CTO/CIO for JHM Hotels based out of Greenville, S.C.

❘❙ between the Lines ❙❚A Letter from the HFTP President

hank you. Thank you for allowing me the opportunity to represent our association over the past year. My global travels as an ambassador for HFTP has been an incalcu-

lable experience, and has served to prove what I already know: there is great value to our association.

What I observed, was that we have something to offer hospitality finance and technology professionals in China, India, Europe, Argentina and more. A fact that is already known by the thousands of HFTP members, a majority of which are in North America. The combination of education, resources and networking serves to elevates one's professional experiences.

This last statement may sound like marketing speak, but I first-hand have benefitted from my membership. While I currently oversee JHM Hotels' technol-ogy endeavors, I originally started from a finance perspective. It was through attending HITEC, speaking with other HFTP tech-members and earning my CHTP that I migrated to my current area of specialty. What I learned has not only benefitted me, but has kept our hotels current with the technology that fits. I know that many of you out there have similar stories.

And on a broader level, HFTP is bringing its base of knowledge to other hos-pitality industry groups and associations. We have done this by signing MOUs, agreements to exchange resources, with organizations such as: the Asian Ameri-can Hotel Owners Association; the National Association of Black Hotel Own-ers, Operators and Developers; the Latino Hotel and Restaurant Association; FEHGRA Argentina and the Federation of Hotel and Restaurant Associations of India — which is the second largest hospitality association in the world and many more. Understandings like these can only benefit the industry as a whole, because it opens up a dialog and keeps us all moving towards industry progress.

And on an even broader scale, we are developing a long-term resource that will become an established and known resource. I am referencing the Global Hospitality Accounting Common Practices. Still in production, but with great progress made, the database gives detailed operating financial reporting practices used at lodging properties around the world.

All this serves us professional members well, but I also want us to remem-ber another membership group: our students. I am happy to see that our stu-dent membership has grown this year. This can only be a benefit to all of us. The interaction between the next generation of professionals with experienced professionals, as well as the opportunity to access HFTP educational resources leads to a more confident and knowledgeable job candidate. If you do have the

opportunity, be sure to speak with a student member at the next chapter event you attend.

This year has been a great honor for me. And even though I have com-pleted my term as president, I don't expect my involvement to lessen. I am a great believer in our association, and I will continue to be an active HFTP member.

t

6 Fall 2013

Details to consider when building a mobile application

HospitALitY App strAtegY

❘❙ Q&A from the HFtp research institute ❙❚

Q.What are characteristics of a good mobile

application?

A.That is a great question. Probably nearly every hospitality business has either developed a mobile application or is currently in the process of devel-

oping an application which can be used on a mobile phone or tablet.

There are multiple factors to consider when developing a mobile application, of course it all depends on the purpose of the mobile application. Lodging properties will want to offer guests the ability to make reservations, view various amenities and make spa reservations. Golf courses and country clubs will want their members to have the option to reserve tee times and order refreshments while on the golf course. Then there are other hospitality-related organiza-tions whose sole purpose is to sell airfare, car rentals and hotel stays. All of these organizations want to develop the ideal mobile application for their clientele.

The following are general guidelines companies should take into consideration when developing a mobile applica-tion for the hospitality industry.

make the App FreeTypically, hospitality organizations will offer their mobile applications for free. The purpose of a mobile app for most hospitality organizations is to market and facilitate pur-chase decisions. Therefore, the greater the mass of individ-uals downloading the application leads to a greater number of potential purchasers.

speedOne of the key features of a successful mobile application, as well as a successful web site, is speed. Even though many smartphones are getting as robust as a laptop com-puter, there are still many users with simpler phones. If it takes a long time to load information or special features on the mobile app, then customers are less likely to utilize that feature in the future.

Keep it simpleThe mobile app should look simple and be easily viewed on a small screen. Carefully consider everything down to the tiny icon which will appear on the phone. This should reflect and relate to the business which it represents.

Do Not Duplicate the Web siteSome companies make the mistake of simply duplicating the company’s web site into a mobile application. Mobile applications offer more opportunities for interaction with users through features such as GPS, QR code readers and cameras. Take advantage of these opportunities to keep guests engaged. The following are examples of good use of mobile technologies: large resort properties can guide their guests using GPS and interactive maps, historical properties can provide guided tours using GPS by sharing information about important sites, artwork, etc., and golf courses can offer golfing tips and videos.

AccessHow will guests and potential customers find the applica-tion? Just as with web sites, it is important to build a mobile application with this in mind.

By Tanya Venegas

Tanya Venegas is the director of the HFTP Research Institute based at the University of Houston. She can be reached at tvenegas@central.uh.edu.

The Bottomline 7

Keep information UpdatedThis advice seems rather rudimentary, but unfortunately there are many mobile applications which are developed and then not updated. One common mistake is outdated special offers, deals or calendars that have not been re-moved. Another important aspect of keeping information updated is keeping reservation information updated. A lodging property does not want a guest to opt for an up-grade or a spa treatment, only to arrive at the hotel and find out it is not available.

UsabilityUsers should be able to instantly use the mobile applica-tion. It is understandable that companies want to gather as much information as possible about their potential guests/customers, but when they initially open the application, do not require them to answer a myriad of questions before getting to the useful information.

mobile Apps should Fit with the overall marketing strategyMobile applications should fit in with the overall marketing scheme. If a customer visits the company web site, reads a hardcopy brochure or visits the mobile application; all of these should have the same visual feel.

Keep Users interestedIf you are a resort located off the beaten path, you can often entice customers planning a visit or on property to down-load your application, but how do you keep them interested. Make the application useful and entertaining. For example, the app could provide local or historical information to help

educate the consumer. Another option could be to provide a game/quiz or some other form of entertainment. Try to keep it relevant to the organization so the customer is constantly being reminded of the property/company.

There are many features that can be incorporated into mobile applications to help hospitality organizations con-nect with their customers. One of the best features is a click to call feature. If a guest has any questions or decides they want to talk to a real person, all they would have to do is click on a “button” and they would be instantly connected. Of course, if you decide to offer this option, you must make sure you have the appropriate manpower available to answer these calls.

Several of the suggestions listed above plus other information was covered in a ProLinks webinar which was originally presented on May 19, 2011. The webinar is titled “Going Mobile: The Future of Hospitality Mobile Apps” by Aron Ezra. Download this presentation, including the accompanying PowerPoint presentation, in the ProLinks archives. Simply go to www.hftp.org and click on the “ProLinks” tab at the top of the page. ■

sources• Ezra, Aron. (May 10, 2011). Five Steps to a Successful

Hospitality Mobile App. Retrieved September 9, 2013, from http://blog.hftp.org/5-steps-to-a-successful-hospi-tality-mobile-app/.

• Wilson, Fred. (February 2013). What Makes a Web App Successful? Ten Golden Principles of Successful Web Apps. Retrieved August 29, 2013, from www.thefaster-times.com.

Example Mobile Applications for Hospitality Businesses

Travel Apps Lodging Apps Restaurant Apps

Expedia Hotels and Flights Best Western International Zagat to Go — Reviews

Hipmunk Flight & Hotel Search Marriott OpenTable — Restaurant Reservations

Kayak W Hotels Yelp

Orbitz — Hotels, Flights, Cars Ritz-Carlton Foodspotting

Priceline Conrad Hotels Happy Hours — Find Local Happy Hours

Hotels.com — Hotel Reservation LocalEats

Travelocity Eat St. – Food Trucks

Hotwire.com

Source: Top 10 Best Flight & Hotel Apps for Android • www.heavy.com/tech

Source: The Best Hotel Apps for Improving the Guest Experience • blog.shermanstravel.com

Source: Top 10 Restaurant Appswww.thetoptens.com

❘❙ Q&A from the HFtp research institute ❙❚

8 Fall 2013

❘❙ HFtp research institute ❙❚

As HFTP expands and adds chapters throughout the world, it is interesting to learn about different cultures and conducting business in other countries. HFTP currently has chapters in the following locations outside the United States: Asia, Canada, Caribbean, Hong Kong, India and Switzerland. The following short report gives a basic introduction to the country, business climate and state of the hospitality industry.

China is the fourth largest country in land size, but boasts the larg-est population at 1.349 million

inhabitants (July 2013 estimate, www.cia.gov). Historically, China was a leading civilization for centuries. China surpassed the rest of the world when it came to the arts and sciences until the 19th century when the country faced multiple problems: civil unrest, major famines, military defeats and foreign occupation. After World War II, the country was established under the com-munist rule of Mao Zedong. During this time, strict rules and controls were set forth which controlled everyday life for the Chinese people.

The late 1970s brought forth a change in leaders for China and a change to market-oriented economic development. Life for the Chinese has improved including an increase in living standards and some room for personal choice, even though the gov-ernment still maintains tight political controls. For example, all broadcast media in the country is owned by or affiliated with the Communist Party of China or a government agency. The largest urban areas in China include Beijing (capital), Chongqing, Shen-zhen and Guangzhou. (www.cia.gov)

Hospitality business DevelopmentThe Chinese government has invested money into the tourism sector at a rate of $4 billion U.S. dollars annually since 2001 according to the World Travel & Tourism Council. These

bUsiNess Across tHe gLobeFocus on China

Top 10 Global Hotel Groups in China

Global Hotel GroupNo. of Hotels Brands

Accor Hotels 141 Sofitel, Pullman, Novotel, Grand Mercure, Mercure and Ibis

Carlson Rezidor Hotel Group 33 Radisson Blu and Park Plaza

Choice Hotels International 2 Comfort Inn and Comfort Suites

Best Western (Four Seasons) 38 Best Western and Four Seasons

Hilton 30 Hilton, Doubletree, Conrad and Waldorf Astoria

Hyatt 20 Park Hyatt, Grand Hyatt, Andaz and Hyatt Regency

Intercontinental Hotels Group 160 Crowne Plaza, Hotel Indigo, Intercontinental and Holiday Inn

Marriott 61 Ritz Carlton, JW Marriott, Renaissance and Courtyard

Starwood 104 W, Sheraton, Westin, Four Points, Aloft, Le Meridian and St. Regis

Wyndham 200Howard Johnson, Ramada, Super 8 Motels, Days Hotel and Wyndham Grand Plaza

Source: Business Monitor International. (May 2013). Chinese Tourism Report Q3 2013, page 37.

The Bottomline 9

monies have gone to items such as expanding an already well-developed rail system and an increase in the number of major airports servicing the country. These facilities already experienced a major upgrade in preparation for the 2008 Summer Olympics which were hosted in Beijing. In addition to this influx of investment, the Chinese govern-ment has also opened opportunities for foreign direct investment in lodging and foreign management of travel agencies (Chinese Tourism Report, May 2013).

When it comes to business development, one must keep an eye on issues currently facing the local government. Some issues the Chinese government needs to tackle include: reducing a high domestic savings rate/low domestic demand, sustaining adequate job growth, reducing corruption, con-taining environmental damage and social strife. To expand on environmental damage, China is facing challenges due to rapid industrialization and urban expansion. Some of these items which would specifically impact the hospitality indus-try include: air pollution, acid rain, water shortages, water pollution, deforestation, soil erosion and desertification.

Hospitality industryThe hospitality industry in China is rapidly expanding. China is a sought after travel destination for both domestic and international tourists because the country has many historical attractions to offer. The country is home to 43 UNESCO World Heritage sites, including the Forbidden City in Beijing, the Terracotta Warriors at Xian and the Great Wall of China. In addition to historical sites, China also offers eco-tourism such as tours to see pandas or tigers in their natural habitats.

According to 2011 estimates by the U.S. Central Intelli-gence Agency, nearly 36 percent of the Chinese population was employed in the services sector. This number is bound to have grown over the last few years and will continue to grow in the future as more and more hospitality establish-ments are developed in the country. Nearly all of the major lodging brands are currently present in China and have ag-gressive growth plans in the burgeoning region. ■

sources• Business Monitor International. (May 2013). Chinese

Tourism Report Q3 2013. Retrieved September 2, 2013, from Hospitality & Tourism Complete database.

• Business Monitor International. (May 2013). Hong Kong Tourism Report Q3 2013. Retrieved September 2, 2013, from Hospitality & Tourism Complete database.

• Central Intelligence Agency of the USA. (April 13, 2013). East & Southeast Asia: China. Retrieved Septem-ber 2, 2013, from www.cia.gov.

• Central Intelligence Agency of the USA. (August 22, 2013). East & Southeast Asia: Macau. Retrieved Sep-tember 9, 2013, from www.cia.gov.

• Voellm, Daniel J. and Pukea Nai Jang. (2013). The HVS Quarterly: Hong Kong, Macau, China and Taiwan Up-date. Retrieved September 2, 2013, from www.hvs.com.

❘❙ HFtp research institute ❙❚

Macau

Macau was originally colonized by the Portuguese in the 16th century and was the first European settlement in the Far East. On April 13, 1987, China and Portugal signed an agreement which would make Macau a Special Administrative Region of the People’s Republic of China. Under this agreement, Macau maintains its own political and economic systems and falls under the umbrella of China when it comes to matters of foreign affairs and defense.

Macau has long been a center of gambling, which dates back to the 1850s when gambling was legalized by the Portuguese government. In 2001, Macau opened up its casino market to foreign investors and investment in the region skyrocketed to surpass gambling revenues realized on the Las Vegas Strip. More than seventy percent of total government revenues come from gaming-related taxes. It is amazing to think that this small country, measuring only 28.2 sq km and home to 582,000 people, hosted over 28 million visitors in 2012. (www.cia.gov)

Hong Kong

Hong Kong is also classified as a Special Administration Region of the People’s Republic of China which occurred on July 1, 1997. As part of this agreement, Hong Kong maintains a separate customs territory and economic entity separate from China and is able to enter into international agreements when it pertains to commercial and economic matters.

When it comes to the hospitality industry, nearly 41 percent of the population is employed in the retail trade, restaurants and hotels (www.cia.gov). The majority of travelers to Hong Kong are from mainland China, which constituted 74.6 percent of tourist arrivals in 2012 (Voellm, 2013).

chinese special Administration regions

10 Fall 2013

❘❙ HFtp News & Notes ❙❚

Justin Taillon is an assistant professor at the School of Hospitality & Tourism Management at the University of Guelph in Toronto, Ont. He can be reached at taillon@uoguelph.ca.

A LooK At HFtp stUDeNt cHApters

Each year’s HFTP Annual Conference is preceded by the Leadership Summit. This two-day event provides insight to the larger organization we are all

a part of. This year I was asked to speak this October at the Leadership Summit in Dallas about student organiza-tions. I couldn’t possibly be more excited to share what my 13 years of HFTP involvement in student chapters as an undergraduate student, graduate student and professor has taught me.

Student chapters are similar to professional chapters, yet they require a slightly different type of love and care. Here are some of the key points that differentiate student chapters from professional chapters.

A New Generation. Student chapters consist of a new generation of hoteliers and club managers. This new gen-eration is still learning the ropes. They are aware there is a lot to learn still. This new generation of hospitality profes-sionals do not yet have the network, experience or industry understanding to succeed. It is through the dedication and mentorship of HFTP’s professional members that these students learn and grow into successful professionals.

Fundraising. We should also remember that whereas many members are reimbursed by their companies for their attendance to HITEC, Annual Convention, Leadership and monthly chapter meetings, students must pay their own way. The student chapters often need to be highly active on campus in fundraising efforts and subsequently spend their limited financial resources wisely. Anything local chapters can do to help their student chapters is always appreciated.

Students Only. Student chapters consist of students. Un-like most HFTP professionals, they are not working in the industry 40 hours (or 60 hours) each week. They are spend-ing time on physics and biology, history and sociology, and other university coursework. Their dedication to the indus-try cannot be gauged by their current knowledge base of the nuts and bolts, especially this early in the school year.

Quick Turnover. Many HFTP leaders have been in their roles for 15, 20 or more years. If a student chapter member is heavily involved for 20 years we need to worry about that individual, right?!?! Successful student chapters are thus unique — the turnover is unusually high as top HFTP students graduate and join professional chapters after a maximum of four years of involvement.

If you are a professional member of HFTP, I urge you to take the time to connect with your area student chapter. There is a great opportunity for exchange.

By Justin Taillon

Key factors differentiating student chapters from professional chapters; Profile of the HFTP UNLV Chapter

HITEC Welcome Reception this June at the Nicollet Island Pavilion in Minneapolis, Minn. Pictured: Top, student volunteers; Bottom, Taillon with HITEC attendees.

The Bottomline 11

PROFILE

the University of Nevada, Las Vegas

❘❙ HFtp News & Notes ❙❚

Some students are able to make the transition from stu-dent to professional with particular ease. For example,

in recent years I have spent time with Danny Crinson at conferences. His professionalism and knowledge are outstanding. This outgoing student chapter president from the UNLV Chapter (University of Nevada, Las Vegas) is moving on to become a professional member this year; in fact, he has already been elected director of operations for the HFTP Las Vegas Chapter.

We began this column to highlight activities of student chapters. As part of this series, I intend to highlight one of the chapters in each issue. This month we are profiling the UNLV Chapter.

I sat down with Danny at HITEC in Minneapolis recently to discuss how he managed to navigate the UNLV chapter so successfully in recent years, what the student chapter has in store and how he leveraged the opportunities HFTP’s UNLV Chapter afforded him locally, nationally and globally.

What makes your chapter unique?I would say what makes us so unique is that we do have that laboratory in our backyard (Las Vegas). When we have a chapter meeting it’s always going to be something dif-ferent. It’s not like we have this regular restaurant we have to go to. For example, we had HFTP Global President R.P. Rama, CHA, CHTP, CHTP attend an event recently and we took him to The Stratosphere Tower and Casino. What makes us so unique are all the different opportunities, from guest speakers to properties, that are here and want to work with us and our students.

What project/program are you especially proud of?We’ve raised awareness of HFTP and the professional opportunities hospitality technology and finance offer students. There’s so much happening now! We’ve recently grown from 30 to 100 members. We’ve done so many fun and creative things to get this growth, like we have special LMFAO-style sunglasses for our members. We have also begun running more professionally. We have professional e-mail addresses for the group members, we have been fol-lowing best practices in banking and keeping our finances orderly, and we have a strong succession plan in place.

Describe some of your most successful ongoing efforts?Definitely our mentorship program. We have been able to help students maximize their potential through this really successful program. Personally, I had a mentor. It was such a positive experience. I relied on it heavily and learned so much.

Members of the HFTP UNLV chapter show HFTP Global President R.P. Rama the Las Vegas skyline atop the Stratosphere Tower and Casino.

What are you most looking forward to in the coming years?I have been hired to teach the capstone course at UNLV. So for now I’m staying on campus in Las Vegas. I am looking forward to continuing a leadership role in HFTP at UNLV and to get the students excited every year. We went through so much growth in the past couple years. The current students are very excited for the future. I want to see this continue. ■

12 Fall 2013

Pssst, there’s a rewarding and fun way to help yourself while help-ing others: volunteering! Volun-

teering, whether it be with HFTP or with another organization, can provide you with numerous benefits all while helping others achieve their goals. Individuals are constantly adapting to their surroundings and volunteering can be a great way to develop a new skill set or to hone skills that have been in use for some time. Perhaps you are a hotel accountant, but you often dream of planning a leadership summit program for hundreds of your peers or maybe you manage the tech-nology of a global hospitality brand and you would like to learn new tips on how to better lead a multinational team. Volunteering gives you the op-portunity to explore fields that interest you, but are not necessarily an expert in. Becoming an active volunteer also allows you to network and social-ize with peers with similar interests. Working as a team to reach a set goal brings people together and creates a sense of community with bonds that can last a lifetime. Your work may be current, but rest assured that you are leaving your footprint for future volunteers. Volunteers have a lasting impact on the future of the associa-tion and those involved. After all, it was Winston Churchill who said, “We make a living by what we get, but we make a life by what we give.”

HFTP loves its volunteers, plain and simple. Without the thousands of vol-unteers that dedicate their time and energy into the success of the association, HFTP would not exist as it is. From the local grassroots level to the global Ex-ecutive Committee, HFTP’s heart and soul is its volunteers. Many of the changes that have occurred over the years have been volunteer-driven. HFTP volunteers have been instrumental in suggesting and developing member programs and benefits that reflect the needs and wants of the membership.

"I actually was nudged to volunteer," said Ursula Cornish, CHAE, who has served multiple leadership roles for the HFTP Greater Houston Chapter, includ-ing as its president. "I was new to the chapter and didn’t know many people or feel that I had anything to offer. That little push has truly transformed my life. It has taught me that you never know what you are capable of if you don’t try. I keep coming back because HFTP will always have a special place in my heart and I want to be around to be the push that someone else needs to change their life and bring them out of their shell."

Many volunteer positions throughout HFTP are now open for applications. Here’s a few ways to get involved.

globalThe guiding lights of HFTP are the Executive Committee and the Global Board of Directors. Each year, members applying for a position on either of these two groups goes through a series of applications and interviews to determine who is

DeVeLop A NeW sKiLL set As AN HFtp VoLUNteer

By Danielle Chong

Numerous volunteer opportunities are available at the chapter or global level

Danielle Chong is the HFTP director of membership. She can be reached at danielle.chong@hftp.org.

Chapter volunteers gather to discuss strategy at the 2012 Leadership Summit in Orlando, Fla.

❘❙ HFtp News & Notes ❙❚

The Bottomline 13

the best fit for the association at that time. Members who have served on the Executive Committee and Global Board of Directors come from around the world and represent a variety of professional backgrounds and past leadership roles. This year’s newly chosen Executive Committee and Global Board of Directors will be installed at the 2013 An-nual Convention and Tradeshow in Dallas.

Recently, HFTP announced the inception of the Re-gional Mentor program that offers guidance to members regarding HFTP membership. Many members applied and the chosen mentors are excited to share their experiences with others. HFTP has other programs in the works that will require volunteer assistance so be sure to keep an eye out for any upcoming opportunities.

councils/committeesIf you are looking to volunteer on a global scale, but may not be able to run for the Executive Council or Board position just yet, consider volunteering on one of HFTP’s many councils and committees. Depending on the level of involvement you are interested in, you can choose a group that’s right for you. The Education Advisory Council and Leadership Summit Advisory Council are among the most involved volunteer options. A majority of the councils and committees are responsible for selecting the educational sessions for a given event, recruiting speakers, and identify-ing relevant topics of interest to the industry. The Young Professionals Council, Paragon Award Selection Committee and International Evaluation Council are categorized on a second engagement level. These councils and committees interact mainly through e-mail and conference call, but are responsible for aspects of the association just as important as the above mentioned advisory councils.

chaptersA great way to start your volunteer career with HFTP is at the chapter level. Chapter volunteer duties range from chapter office positions to event planning to web site main-tenance. Another simple way to help out is recruiting new chapter members. Volunteering with a local chapter will pro-vide excellent networking opportunities and act as a founda-tional stepping stone to other volunteer opportunities in the future. Chapters are always on the lookout for the next rising star so be sure to contact your local chapter to see how you can contribute to HFTP right in your own backyard.

"Volunteering for HFTP has been an extremely reward-ing experience both professionally and personally," said Bryce Wark, chapter president for the HFTP University of North Texas student chapter. "It has given me the opportu-nity to meet and get mentored by top professionals in the industry I wish to pursue."

Volunteering with HFTP will ignite your spirit and allow you to explore your interests while creating an association that everyone wants to be a part of. Start small and think big — volunteer today! ■

can You Answer this cHAe exam Question?By Kris Shoemaker, CMA, CGFO, CHAE, CHTP, CPFIM

The CHAE exam was designed to test a wide range of knowledge critical to those in an hospitality finance environment. Below is an example of a question you might see on the exam.

QuESTION:

Discretionary amounts added to a beverage sale as a gratuity to an employee by a hotel guest are treated as:

A) Other beverage revenue.

B) Service charges.

C) Tip income to the employee.

D) Tip income to the hotel.

ANSWER:This question is tricky as it separates the difference between gratuity and service charges. Gratuities are voluntary and service charges are mandatory (or automatically added to the guest check ). One hundred percent of gratuities (aka tips) are distributed back to the employee, while in some properties the service charge is distributed based on a scale and some properties keep a certain percentage of the service charge for credit card and other administrative processes. Therefore the answer to the question is: C) Tip income to the employee.

More information about preparing for the CHAE is available online, including review slides, sample questions, a practice exam and steps to applying to take the exam. Find all this and more at www.hftp.org/chae.

KNOWLEDGE BANK

Kris Shoemaker, CMA, CGFO, CHAE, CHTP, CPFIM is CFO of the Orange County Convention Center. He is also a member of the HFTP Certification Advisory Council and frequently leads the CHAE Review at HFTP events.

❘❙ HFtp News & Notes ❙❚

14 Fall 2013

Our HFTP leaders work hard to lead the association towards meeting its strategic goals and provide a positive impact on industry professionals and the industry as a whole. Set to lead the association is Trieber who is regional director of accounting at Crestline Hotels and Resorts based in Fairfax, Va. Here are some detail on his experiences as an HFTP member and the direction he sees the association going.

tell us how you came to become a member of HFtp. I joined HFTP in May 1997 after receiving an unsolicited mailing from the HFTP North Texas Chapter in Dallas earlier that year. I immediately became interested in join-ing the organization. At the time, I was working for a large public accounting firm providing services to hospitality (hotel) clients. I was not working directly for a hospitality enterprise and had not heard of HFTP. So, when I received the mailing, I was excited to learn that there was a profes-sional group that was focused on hospitality accounting. I thought that I would be able to meet and network with other people who shared the same avocation as I did; the organization sounded great.

How has being active with HFtp helped you professionally?Membership in HFTP has given me a feeling of “belong-ing,” that I am not alone in this profession. Whenever I have a question or want to learn about a best practice, I contact a friend or colleague in HFTP. I have been able to talk, network and share ideas with people who have the same passion for the hospitality industry, and who do the same things that I do, which has been invaluable. Being a member has allowed me to develop lifelong friendships, improve my public speaking skills, increase my leadership skills and broaden my interpersonal skills.

Name a benefit to HFtp membership that you rely on.One of the benefits on which I rely is education. Even though I hold a CPA and other professional designa-tions, there are no other opportunities where I can obtain

education, continuing professional educa-tion or otherwise, for hospitality finance or technology, other than from HFTP. The association’s educa-tional programs are second to none in the areas of hospitality finance and technol-ogy. As a Certified Hospitality Ac-countant Executive (CHAE), it is impera-tive for me to stay current regarding the goings-on in the fields of hospitality finance and technology; HFTP is the best place for me to get that information.

What encouraged you to be an HFtp leader? My passion both for HFTP and the hospitality industry drove me towards a leadership role. Once I joined HFTP, it was the passion of previous leaders that drove me to where I am today. I joined HFTP when I was 25 years old, but knew that I wanted to be a member of the global executive com-mittee by the time that I turned 40 — that’s just how much I loved HFTP. As it happened, I was installed as HFTP global secretary at the age of 39.

What are some initiatives you are looking forward to working on during your term as HFtp president? During my term as HFTP Global president, I am looking forward to continuing the initiatives started by my prede-cessors to continue “to lead and advance the hospitality profession by providing a forum for continuous learning and knowledge sharing,” the core purpose of HFTP. Dur-ing the past several years, HFTP has continued to increase its global footprint; I am looking forward to seeing HFTP continue to grow globally, to increase our membership, and to provide educational and networking opportunities to the global hospitality industry. ■

2013-2014 HFtp global president

JerrY trieber, cpA, cHAe, cFe, cFF, cgmA This fall, HFTP welcomes the 2013–2014 Global Board of

Directors and Executive Committee, with Trieber at the helm

16 Fall 2013

“I am truly humbled and greatly appreciate being named the recipient of the Paragon award and would like to thank the selection panel for this recognition,” said McInerney. “I am deeply honored to be associated with the men and women who have received this most prestigious award before me.”

McInerney has had an extraordinary career that spans five decades, beginning with his first job in 1961 at the Sheraton Chicago as a staff planner. He contin-ued with Sheraton, gaining a broad base of experience in positions in the food and beverage and personnel departments, and then quickly moved to managerial positions working in the company’s franchise division. Ultimately he was named president of ITT’s Sheraton franchise division in 1979.

After 25 years with Sheraton, he was tapped to helm the launch of Haw-thorne Suites. McInerney’s work here is widely recognized for revolutioniz-ing the franchise concept for Sheraton and popularizing the suite concept for Hawthorne Suites.

McInerney later worked as president/CEO of Travelodge in 1991, and presi-dent and CEO of Forte Hotels in 1992, where he grew the brand to the point where it was sold at a significant profit.

At this point McInerney began his career as an association executive. First restructuring and growing the Pacific Asia Travel Association. In 2001 he joined the American Hotel & Lodging Association as its CEO. During his 12 years as the head executive of AH&LA, McInerney reorganized the association to stream-line efficiency and strengthen its core operations, including consolidating its two affiliates to form the AH&LA Educational Foundation.

An impressive resume, and with this kind of backing McInerney took it upon himself to spread the word about a fledgling hotel computer show, now HITEC.

Sheraton was an early supporter of the show, with Joe Pignataro their vice president of technology serving as co-chair. As the show put some years in, top Sheraton executives would also attend and support the show, including McInerney.

"Behind the scenes, he opened doors to many other sponsors, vendors and industry groups, providing the critical support that gave us the momentum to grow HITEC to what you know of today," wrote HFTP Global Past President Sal Spano, CHA, CHAE, president of the Palm Beach Polo & Country Club.

It was HITEC 1992 that was a game changer. At the time it was difficult to get major speakers, with many potential speakers replying that they didn’t want to speak to a “bunch of accountants.” But, McInerney agreed to speak and also helped secure other major chain presidents on the stage.

Under McInerney’s leadership at AH&LA, he continued to be a friend to HFTP. The two organizations worked together on the continuance of the Uniform System of Accounts for the Lodging Industry, developed the Certified Hospitality Technology Professional (CHTP) certification and computerized all of the indus-try’s certification programs. He also recognized HFTP’s voice by assuring an ex officio seat for HFTP on AH&LA’s board of directors, and vice versa.

"Mr. McInerney’s 50 plus years in hospitality has been marked by out-standing leadership that encourages success through collaboration," said George Glazer, senior vice president of AH&LA Education Institute and a recipient of the Paragon Award. "His achievements in leading very differ-ent types of organizations spring from his energy and his skill in assembling the best and brightest and providing them with the support and resources to succeed."

Most recently, in his last offi-cial days as president and CEO of AH&LA, McInerney assisted HFTP with its ongoing efforts to establish an office in India, educating the staff on the process necessary to make this endeavor a reality and asking his staff in India to assist HFTP.

Just retiring as AH&LA CEO and president last year, Joe still does not rest. He continues as president and CEO of McInerney Hospital-ity International LLC, a full service international consulting firm based in Washington, D.C. and as emeritus president and CEO of AH&LA. ■

2013 Paragon Award

JosepH mciNerNeY, cHAMcInerney, was selected for his efforts in helping HFTP be known amongst the hospitality industry at large.

18 Fall 2013

❘❙ Human resources ❙❚

There have been hundreds of articles on labor management in our industry and there are as

many solutions to the question of how it is best managed. It’s fairly safe to say that labor is the greatest expense in hospitality and upward pressure on labor seems to be out-pacing our ADR and average checks. What we can’t forget is that our people, our culture and the personal interactions with our guests leave lasting impressions that make us truly successful. The objec-tive of labor management is to get the right people in front of the right customers at the right time. While this sounds simple, it still remains our biggest challenge with regard to minimizing costs and maximizing guest loyalty.

So, what goes wrong? When we look across our many hotels, res-taurants and clubs there are some common themes with regard to labor management and scheduling. With the whimsical nature of our guests and the cyclical nature of our groups, many of these themes appear to be out of our control, but we can do a better job of understanding them and therefore controlling them to a large extent. The following strategies are designed to create discussion for improvement in

Mike Flint is director of finance for The Westin Harbour Castle in Toronto. He is also a speaker at the 2013 HFTP Annual Convention & Tradeshow. He can be reached at mike.flint@westin.com.

your organization to help you consider some of the common areas of need with regard to labor management and scheduling.

No two schedules are the same (Nor should they be!)The key here is to understand what your labor standards are (how many rounds of golf per pro-shop employee, how many covers per server or how many check-ins per agent) and schedule based on that standard. Never should your schedule be the same week to week — even in small departments. Many departments use one labor standard, but in most cases it’s better to have more than one. To

LAbor mANAgemeNt AND proDUctiVitY strAtegies

By Mike Flint

Build a picture of your property's activity patterns to schedule to demand

illustrate, front office employees are scheduled based on the number of oc-cupied rooms, but check-in /check-out patterns are also critical, as is the mix of business in the hotel. How many families are coming in? How many seniors are checking out and prefer the face-to-face check-out? From an F&B perspective, have you profiled your banquet guest to understand their food preferences? A youth sports banquet has a very different consump-tion profile than a teachers' union. Do you fully understand your weather patterns/peak season/weekend activi-ties? Do you have the right metrics to determine these patterns?

This is your chance to be creative. All revenue and cost sources have a predictability factor and a measure in which to quantify the success or failure of your ability to predict. If you charge for parking, what is your RevPAS? (Revenue Per Available Spot). If you operate a restaurant, have you considered your Revenue Per

Available Seat Hour? With time, you will improve the predictability factor in these standards and it will make the scheduling practice much simpler.

The other factor is to make sure these metrics and scheduling stan-dards are not a secret. When creat-ing a schedule, put those details at the top of the schedule by day so the employees understand the rationale behind your scheduling decisions. One mark of a good golf course is any employee should know how many rounds are being played that day. Or any hotel employee should know how many rooms are occupied. Transpar-ency keeps employees engaged in the scheduling process and improves their satisfaction.

We Assign scheduling to Junior LeadersScheduling can be an arduous, mun-dane task at the best of times. With all the coordination of PTO requests, guaranteed days off, forecast changes and time edits, senior managers gener-

ally don’t have time for this kind of work. Assigning this work to a junior manager or coordinator is good for de-velopment, but they often don’t see the big picture on how scheduling impacts the bottom line and guest satisfaction. Senior managers, department heads and even division heads must be in-volved before the schedule is posted to ensure all key performance indicators (KPIs) are met. A weekly labor review is critical to understanding scheduling inputs and the resulting outputs. (More on that below.)

Forecasts are Not AccurateIt is not a surprise that a schedule is only as good as the forecasted inputs. It is also not surprising that a forecast is not just occupied rooms, rounds of golf or food covers. A forecast needs to look at segmentation, business mix, weather, airline schedules, festivals and events, and other demand gen-erators. A forecast also needs to look at guest patterns by the hour. If this

❘❙ Human resources ❙❚

20 Fall 2013

sounds like too much detail for the size of your operation, it isn’t — it can be the difference between profit and loss, bonus or no bonus.

Taking the time to detail the work your employees are doing is time well spent. When you understand the ebbs and flows of their hourly interactions with members and guests, you will have greater depth to your forecast and a better sense of how to schedule. There are great tools you can use to get you that hourly data, but often a clipboard and survey can give you all the information you need.

Once you have the hourly data and all the forecast inputs you require, then you need to schedule accordingly. This means thinking differently by assigning shorter shifts, staggered start times, split shifts and even assigning when people go to lunch. Difficult conversations can be backed up by solid data and sharing the KPIs with your team to rationalize your decision making.

the Weekly Labor review meetingDo we really need another meeting? Well, you are leading a multi-million dollar enterprise and your highest, most fluid expense impacts the lives and well-being of your employees and guests. I’d say this meeting is the price of admission.

The weekly labor review needs to consider two elements: how every-one is doing month-to-date and how their schedule is going to look for the next week. Measured against pre-determined productivity “factors,” the discussion becomes a collaborative, accountable interpretation of the labor situation in your hotel, restaurant or club. Departments that have fallen short are there to explain why and those who are doing well can be used to help those departments that are struggling. Ensuring there is adequate feedback on previous schedules is also key. (Housekeeping said last week they would schedule 1,200 hours and they came in at 1,325. What contrib-uted to the overage? Were the hours per occupied room the same, better or did they get worse?) Feedback is the essence of scheduling experi-ence. I have personally seen banquet managers take two full years to feel like they “get it” when it comes to their complex scheduling. Also, don’t miss the opportunity to follow up after the month is over to determine how the schedules impacted profitability, margin and flow-through. What gets measured — gets done.

share best practicesFor the most part, our industry is good at sharing information. Find

out who is doing well from a labor management point of view and see what you can do. Good examples are: Offer your multi-night hotel guests $5 off F&B if they leave their room unchecked — reducing the rooms you need to clean; set a standard on how to stack a bussing rack in ban-quets so more can be carried out and fewer porters are needed; solicit your switchboard software provider to track the call volume of your operators so you can schedule by when the calls are coming in; learn the principles of fives (a place for everything and ev-erything in its place) — studies show staff spend a lot of time looking for things; buy prepared foods over foods that need a lot of preparation in your kitchen. Hotels, restaurants and clubs can always find more efficient ways of doing things — mark my word. Take the “we’re already lean” speak out of your everyday.

The other side of this is a strong commitment to education. As men-tioned earlier, we task junior leaders with management of the schedule. A first-time scheduling manager will focus on balancing the needs of the employees first and the needs of the guests/members second. (With little to no regard for the enterprise!) Training in the “full-circle” view of labor man-agement will engage them and ensure they are fully aware of the tools and techniques available to them to really build a great platform for success.

Balancing the needs of our guests, members, employees and sharehold-ers is what we do on a daily basis. But, we need to get this one right. It’s right-sizing, not down-sizing; it’s scheduling to demand. Knowing the peaks and valleys of our interactions with guests helps build a good fore-cast. A good forecast leads to a better knowledge base to build our sched-ule. Taking the time to understand how those daily decisions impact our operation toward effective scheduling and weekly labor review is critical. We need to be able to put our best foot forward and create experiences for our guests that last a lifetime. ■

Improving Labor SchedulingNo Two Schedules are the SameUnderstand what your labor standards are and schedule based on that standard.

Oversee the Final Schedules Before PostingJunior managers or coordinators often don’t see the big picture on how scheduling impacts the bottom line and guest satisfaction.

Schedule According to TrendsTake the time to detail the ebbs and flows of your employees' activities and interactions with guests, and then base your schedule accordingly.

Conduct a Weekly Labor ReviewReview how everyone is doing month-to-date and how their schedule is going to look for the next week.

Share Best PracticesLearn new techniques from others doing well from a labor standpoint.

❘❙ Human resources ❙❚

22 Fall 2013

❘❙ F&b management ❙❚

Accounting also spends unnecessary amounts of time trying to make sense of the inventory. Transposed numbers, keyed-in from manual inventory forms, give a false impression of your inventory, thus affecting your ability to maintain proper stock levels. Receiving errors such as over-delivery and product substitutions, not easily caught with a manual system, also drive your costs up.

With a manual system there is no validation of your inventory such as prod-ucts not counted or quantity discrepancies uncovered. Since you never know

tAKe coNtroL oF YoUr F&b iNVeNtorY

Today’s food and beverage inven-tory systems provide true ROI and serve up operational effi-

ciencies that have a positive impact on any hospitality organization’s bottom line. Here are new strategies and tech-niques that will help you take control of your F&B inventory.

Understanding the pitfalls of manual inventory systemsFirst let’s look at an all too common practice — the use of manual inven-tory systems in hotels, country clubs, restaurants, etc. These systems are partly to blame for out of control inventory, running out of food and beverage product, and high food and beverage costs. But let’s be clear and look at a definition: manual inven-tory systems are a set of procedures focusing on the collection of informa-tion using various paper-based forms and requiring the manual transfer of this information to spreadsheets or databases.

Manual inventory systems are cumbersome, labor-intensive, prone to error and fall short of delivering reliable information. This costs you money. Your associates rack up lots of overtime, and researching discrepan-cies becomes a time-consuming task.

Jay Williams is director of marketing and sales for Clear Sky Software, Inc. He is also a speaker at the 2013 HFTP Annual Convention & Tradeshow and is president of the HFTP Charlotte Blue-Ridge Chapter. He can be reached at jay@clearskysoftware.com.

By Jay Williams

The critical information an automated inventory system provides, plus the efficiencies

and productivity it supports, will positively affect your bottom line over and over

The Bottomline 23

❘❙ F&b management ❙❚

what you have on hand until month-end, this results in “blind ordering” that can result in over-stocking or under-stocking your shelves. Manual inventory systems also do not cre-ate an environment of accountability where orders are tied to sales or inven-tory. Still not convinced? All of this excess labor, inaccurate inventory and lack of reliable information negatively affects customer service, meaning you lose to your competitor. This situation also pulls employee morale down so now staff turnover is on the rise.

Hotel systems consultant Jon Inge wrote in Hospitality Upgrade, "De-spite their being less visible, automat-ing and integrating back-of-house functions can make just as significant a contribution to smoother running operations and higher guest satisfac-tion as the more guest-visible front office systems. Their greater benefit lies in the business process improve-ments they make possible.” (Hospital-ity Upgrade, 2006)

the importance of organization before AutomationAn F&B inventory system’s best friend is a well-organized storeroom. You should make this a priority wheth-er you use a manual or automated F&B inventory system.

Most hotels, clubs and restaurants do a poor job of planning storage space. Often F&B storage is an after-thought lucky to claim a corner of the kitchen or an abandoned closet. This usually results in products scattered all over multiple storage “nooks.” Beg, borrow and steal the most storage space you possibly can. Then make sure they are clean, orderly and get a fresh coat of paint from time-to-time. If you do these simple things, your F&B team is likely to perform better because you’re sending a message that you place importance on food and beverage storage. A well-organized storage room beats a messy, unorga-nized one hands down when it comes to locating a product.

If you’re lucky enough to have suf-ficient space, demand that it remain

well-organized. Invest in some qual-ity shelving and racks and place like products together.

Now you’re ready for labeling. Even if you do not have a barcode system, you can still place shelf labels. Take the time to print your labels so they are legible and avoid hand-writing them. An automated system should also have the capabil-ity to print barcoded shelf labels and barcode control manuals by location. Also don’t forget about wine hang tags. These too can be printed with descriptions, bin numbers and bar-codes. You may also want to consider label holders for your product labels allowing you to move them from shelf to shelf as you change out your stock. Many shelf and rack vendors can provide these. Next time you visit your local grocery store, notice all the barcoded shelf labels in the aisles. Try to mimic this in your F&B storage.

Next take a serious look at your brand profile. Do you really need four kinds of sweet and sour mix? Try reducing this to one or two brands where possible. Remember, you only make money on your inventory if it’s moving. Get rid of those dusty old products and stop ordering them.

Last secure your storage to remove any temptations from employees.

Why You should AutomateAutomated, barcode-based inventory systems that support a perpetual inven-tory can make significant improve-ments in your inventory accuracy

which contributes to smoother running operations and higher guest satis-faction. Mobile, handheld scanners reduce labor and increase accuracy by allowing you to go where the products are. Scan a product’s barcode and enter a quantity, all of which takes seconds. The information collected by the handheld is then easily transmitted to a desktop PC for immediate updat-ing of your inventory database, thus eliminating the DOUBLE entry of manual systems. Barcode systems also improve inventory control by allowing you to easily create orders, record re-ceipts and transfers, track products in multiple locations, and identify inven-tory discrepancies quickly, accurately and efficiently.

A good inventory program is more than a once a month product count. Barcode systems that support a perpetual inventory allow you to know what’s on hand which supports smarter purchases and reduces costly out-of-stock situations. This could also help in maintaining a smaller inventory by letting your purveyor warehouse product until you need it. These systems also have the data to identify slow-moving products and can spot purveyor “overcharges.” This enhanced tracking and visibility can help lower your overall F&B costs and will ultimately deter theft and over-pouring.

Information in these systems is also more up-to-date and associates spend less time assembling data to create reports. Having a good, automated F&B inventory system promotes a

A good inventory program is more than

a once a month product count. Barcode

systems that support a perpetual

inventory allow you to know what’s on

hand, support smarter purchases and

reduce costly out-of-stock situations.

24 Fall 2013

❘❙ F&b management ❙❚

professional work environment that helps attract good people and reduce employee turnover. When associates are freed-up from manual, time-con-suming tasks, they have more time to do what they were hired to do — take care of the member or guest.

perpetual inventory systems are Now possibleThere are two types of inventory sys-tems — perpetual and periodic. A per-petual system is updated every time a product moves, but a periodic system is updated at the end of an accounting period. Wouldn’t it be nice to know your inventory’s true value throughout the month rather than just for an hour at month-end?

Many F&B managers attempt per-petual systems, but abandon them for various reasons. Perpetual systems re-quire dedication and commitment, but the information they provide makes them worthwhile. Today’s perpetual inventory systems are more manage-able due to better designed software and integration to other systems. POS system integration in particular sup-

ports this as inventory can be relieved automatically as products are sold.

You’re probably thinking: I don’t have the staff for this. But consider that a well-designed system integrated to product vendors all but automates the receiving process. Likewise requisitions, orders and transfers can be created quickly by establishing templates. Once you dive in and begin building a rich database a perpetual system provides, you’ll question how you ever ran your F&B department without this information. For example, purchases become more automated because your perpetual system knows when products have reached re-order status. You’ll also have visibility of hot selling items and products collect-ing dust. With this kind of informa-tion, don’t you think you can create a “smarter” database of products that will help lower your F&B costs?

The mobile, barcode scanning terminal is central in making a per-petual system possible. Well-designed software on these devices helps speed up the process of counting, receiv-ing, requesting, transferring and

returning products. When combined with barcode shelf labels and bar-code manuals, you can now capture product movements faster and more accurately in any location. Most F&B barcode systems also support the use of multiple barcodes per product, allowing users to scan product case codes or barcodes found on the bottle or packaging.

Hardware options: rugged vs. Non-ruggedHardware is an important part of any successful software program and F&B inventory systems are no dif-ferent. Most vendor’s software will run on multiple hardware platforms to include desktop PCs (traditional and touchscreen), tablets, fixed scan-ning devices and mobile scanning hardware. It all depends on your goals, requirements and budget, but an inventory solution that provides a variety of hardware offers up more options to meet more needs. Look for vendors that offer this approach.

Another important consideration is when to select rugged equipment over non-rugged. In the hospitality indus-try, rugged makes the most sense with mobile hardware. These hardware units are naturally going to be more susceptible to floor drops and water and dust intrusion.

Studies have shown the total cost of ownership is much less over time with rugged equipment versus commercial-grade hardware. Non-rugged devices don’t survive drops to floors very well or tolerate temperature extremes. A cheap handheld scanning terminal is not going to like your walk-in cooler and certainly not your freezer. Having to replace non-rugged mobile units quickly eats away any cost-savings. You buy equipment to realize savings in time, personnel, money and ac-curacy. If your hardware isn’t working those savings are lost.

The old adage — we are too poor to afford cheap things — applies here when selecting your mobile, F&B inventory system hardware.

F&b inventory strategiesOrganize before automation — A well-organized storage room beats a messy, unorganized one hands down when it comes to locating a product.

Ditch the paper and automate — Automated, barcode-based inventory systems make significant improvements in your inventory accuracy.

Maintain a perpetual inventory — A perpetual system is updated every time a product moves, keeping you up-to-date on low supplies and which products are your best sellers.

Opt for the rugged hardware — Rugged devices may be pricier up-front, but their ability to withstand the rough F&B environment saves money in the long run.

Select a vendor that meets your needs — Determine where your biggest challenges are and se-lect a vendor that will help solve your greatest needs.

The Bottomline 25

❘❙ F&b management ❙❚

select a Vendor and system to meet YoUr specific NeedsAll F&B inventory systems and ven-dors will be similar yet different. This is good news.

Hospitality organizations have different goals and requirements when it comes to F&B inventory management, so having a variety of systems to choose from is a good thing. Some vendors will focus on back-of-the-house inventory, while some will focus on front-of-the-house pour control. Others will stress procurement and some offer recipe management. You should determine where your biggest chal-lenges are and select a vendor that will help you solve your great-est needs. Look for a vendor that provides a turnkey solution includ-ing software, hardware, installation assistance, training, support and upgrades.

The importance of a well thought-out implementation plan cannot be stressed enough. It is probably safe to say that all F&B inventory sys-tem vendors have good software; they wouldn’t be in business if they didn’t. But it’s the installation of the software, the data preparation and the support that can doom an inven-tory project. Look for someone that is truly service-oriented and will go the extra mile for you.

Other things to look for are a system that offers a handheld, bar-code scanning terminal with software to complete the system. Support should also be there for non-barcoded products. It is essential that a vendor’s software integrates with other systems such as POS, club software, account-ing packages and product vendors.

You probably will not find a vendor that will give you 100 percent of what you want, but F&B inventory systems are getting smarter and better each year. Most of all, keep in mind that any system you select requires com-mitment from your entire F&B team. If everyone is on board, your F&B operations will get a boost.

there’s roi in them thar F&b inventory systemsToday’s automated F&B inventory systems provide a quick payback, generally three to 12 months, but some customers can realize an even quicker ROI depending on how their depart-ments are staffed. These systems offer an almost immediate improvement in the management of your F&B opera-tion, but also contribute real cost sav-ings from the reduction or elimination of labor and falling F&B costs.

Reduction in Labor. Properly track-ing your inventory means counting products, creating orders, recording re-ceipts, documenting issues and returns, and assembling information in concise reporting. All of these activities result in hundreds of hours and thousands of dollars each year if you are using a manual system. An automated system simply saves time and eliminates much of this labor. For organizations that have employees “on the clock” this has particular impact.

Reduction in F&B Costs. The great-est factor contributing to ROI are fall-ing F&B costs. Organizations average 1 to 6 percent reduction in F&B costs soon after an automated F&B inven-tory management system is installed. With annual F&B sales of $1.5 million this represents projected savings of:

$ 1,500,000.00 X .01 = $15,000.00

$ 1,500,000.00 X .02 = $30,000.00

$ 1,500,000.00 X .03 = $45,000.00

$ 1,500,000.00 X .04 = $60,000.00

$ 1,500,000.00 X .05 = $75,000.00

$ 1,500,000.00 X .06 = $90,000.00

Several factors cause the reduction in F&B costs. Some of these include the fact that automated F&B systems provide better data that supports in-formed ordering decisions. Most pur-veyors charge a premium for rushing an order to your hotel or club. These systems also allow users to quickly identify fast-movers and slow-movers, helping you create a smaller, smarter

inventory thus lowering overhead. Gone is the need to “overstock” your shelves. Finally, these systems create an awareness of control that helps de-ter theft, over-pouring and waste. Your staff knows if you’re watching or not and these systems send the message: We’re watching!

the road to Decreasing costsFood & Beverage can be one of the largest revenue generating depart-ments, but is often plagued by high labor and inventory costs. Since most organizations are required to control F&B inventory, the benefit in automat-ing this area is cost containment. Com-pleting the same tasks manually simply requires more labor and more time.

Concentrate on controlling inven-tory and reducing time and labor where possible. Take a good hard look at your F&B costs. Are you satisfied or can you do better? Tracking your inventory every time it moves provides information that will reveal unprofit-able areas and show you where you need to focus.

Manual systems do work if you’re really small, but if you’re an organi-zation with F&B sales of at least $1 million a year, you are going to be hard-pressed to effectively control the flow of F&B product through your facility.

The road to decreasing costs and increasing profits starts with organiza-tion and strong inventory management. An automated system should be part of your tool kit in your F&B department. The critical information an automated F&B inventory system provides plus the efficiencies and productivity it supports will positively affect your bottom-line over and over. These systems are no longer “nice-to-have” but are fundamental in managing your F&B operations. If you and your team will dedicate yourself to this cause, you will lower your F&B costs and net your organization more profit.

Good luck in your F&B department and wishing you high sales and low costs. ■

26 Fall 2013

❘❙ Financial management ❙❚

WHAt DANgers Are LUrKiNg iN YoUr HoteL’s spreADsHeets?

Shh! Don’t tell internal audit — 90 percent of your spreadsheets have errors. If Excel spreadsheet

errors could be the root cause of a $6 billion loss at JPMorgan, shouldn’t we all be paying more attention to our spreadsheets' DNA?

Microsoft Excel may be one of the greatest software products ever created based on its adaptability for imagination, ingenuity and the many uses of the application. It is estimated that over 5.6 million people were using Microsoft Excel for a myriad of tasks for the year ending 2012. Businesses rely on it and many of us in the hospitality industry use it every day for managing budgets, forecasts, gratuities, payroll, journals, capital expenses and every type of analysis. However, this all comes at a cost of enormous risk.

To put the issue in perspective, let’s ask the following: Would your organi-zation use software that is developed by amateurs with no programming experience or support infrastructure? Would you process critical data like a pro forma statement for a new acquisi-tion or payroll through applications that are insecure, not tested, lack doc-umentation and have no audit trail? Most of us would answer “no,” but the fact is that we do this every day with Excel spreadsheets. Excel has allowed us to create “mini-programs” that often become untested, unaudited worksheets/workbooks managing vital data and open the door to errors, risks, losses and even lawsuits.

Sal Galioto, CHAE (sal.galioto@hyatt.com) is RVP – Hotel Finance Americas at Hyatt Hotels Corp. He is also a member of the HFTP Communications Editorial Advisory Council. Mike Baldinger (mike.baldinger@eventionllc.com) is a co-founder of Evention, a provider of Web-based automation of cash management and gratuity distributions for the hospitality industry.

By Sal Galioto, CHAE and Mike Baldinger

While Excel is an invaluable tool, the use of it must be carefully managed, for it is all too easy for an error to creep into a spreadsheet and remain undetected

The Bottomline 27

❘❙ Security ❙❚

this is your wake-up call.The expertise of XETA Hospitality joins the resources of Windstream.

It’s a whole new day.

XETA®, a leader in planning, integration, management and support of hospitality voice and data systems, is now part of Windstream®. Talk about single-source solution — the new Windstream is a $6 billion communications powerhouse with the resources to handle hospitality challenges from Voice/PBX and HSIA to Circuit Provisioning and Converged Networks. Our 3,000+ hotel customers now enjoy a level of expertise, technology and personalized service that sets a new industry standard.

How can we help you?

Hospitality industry,

Voice | HSIA | Converged Networks | 24/7 Help Desk & Proactive Monitoring | Integrated Solutions

1.877.456.7422 | hospitality@xeta.com

www.xeta.com/hospitality

WINDSTREAMINTEGRATED SOLUTIONS GROUPHOSPITALITY

WINDSTREAMINTEGRATED SOLUTIONS GROUPHOSPITALITY

28 Fall 2013

❘❙ Financial management ❙❚

The statistics are astounding. Ac-cording to Ray Panko, a professor at the University of Hawaii whose research focus is on spreadsheet er-rors, 90 percent of spreadsheets used in business contain errors. Also, a PricewaterhouseCoopers study (July 2004) shows the error percentage approaches 100 percent with spread-sheets containing over 200 rows.

The 2012 London Whale debacle which resulted in more than $6 billion in loss by JPMorgan was allegedly related to Excel errors. A task force report found the bank’s Value at Risk was being calculated with an Excel spreadsheet that “required time-consuming manual inputs to entries and formulas, which increased the potential for errors.” As a result, the risk was thought to be much less than expected. Driven in part by spread-sheet errors, market breaking losses occurred. If you look around your

property, you are guaranteed to find workbooks with similar “time-con-suming manual inputs” and spread-sheet errors.

JPMorgan is one example, but the list of other documented cases of spreadsheet horror stories continues to make headlines such as the list below:• Kodak — Spreadsheet error

causes a restated income down by $11 million;

• RedEnvelope — Shares fall over 25 percent due to a spreadsheet error;

• Fannie May — A $1.3 billion “honest mistake” in overstated gains was due to a spreadsheet error;

• Fidelity — A $2.6 billion dividend calculation resulting in a $4.32 per share distribution was a mistake. In reality due to a missing “minus sign,” there was a $1.3 billion loss and no dividend.

error resulting in Annual UnderpaymentThe hospitality industry has not yet made major news related to spreadsheet inconsistencies, but obviously none of us wants the honor of being the first to make that headline. Above is a hospital-ity example from real-world situations.

The illustration is based on ac-tual results from a hotel that has been altered for simplicity. The property uses a spreadsheet to process gratu-ity distributions. Like many hotels, weighting calculation is applied to provide captains with a larger percent-age of the total gratuity received. The spreadsheet factors the weighting into the total hours worked to calculate the share value, but then mistakenly multi-plies by the unweighted tip point. The scenario and errors are illustrated.

the results of one bad cellIn the end, the employees are under-paid, the house is taking a “cut” that

Financials Amounts

F&B Rev. $50,000

Service Charge $10,000

Emp. Type Weighting Weighting

Captain Weighting 1.5

Server Weighting 1

Houseman Weighting .25

Tip Point (Svc Charge/Weighted Hours)

Unweighted Hourly Tip Point $20

Weighted Hourly Tip Point $25

Emp. TypeHrs

WorkedWeighting

Weighted Hrs

Captain 100 1.5 150

Server 200 1 200

Houseman 200 .25 50

TOTAL 500 2.75 400

Emp. Type Payout

Weighted Hrs

Hourly Tip Point

Total Paid

Captain 150 $20 $3,000

Server 200 $20 $4,000

Houseman 50 $20 $1,000

TOTAL $8,000

Emp. Type Payout

Weighted Hrs

Hourly Tip Point

Total Paid

Captain 150 $25 $3,750

Server 200 $25 $5,000

Houseman 50 $25 $1,250

TOTAL $10,000

1. Financials: The property distributes 20 percent of its service charges to the service staff based on an hourly pool. A sample weekly payroll would be based on the following revenue and service charge amounts.

2. Rules: All gratuity is pooled based on hours worked, but weight the captains' and housemen's hours.

3. Hours: A sample

breakdown of the hours worked.

4. Tip Point: The corresponding "tip point" or gratuity per hour would be calculated as shown.

5. Mistake: A simple mistake in a cell reference that pointed back to the unweighted vs. weighted tip point, throws off the gratuity calculation.

6. Result: The correct reference would have resulted in a much higher payment to all employees. The error repeats week after week.

One Error Throws Off the CalculationThis scenario illustrates how an error in a gratuity formula miscalculates the amount distributed.

The Bottomline 29

belongs to the employees and the mis-take is discovered to have happened for years.

Results of Spreadsheet Error

Employee Underpayment $2,000

Percentage Underpaid 20%

Yearly Underpayment $104,000

Potential backpay for 10 years

$104,000, 000

If a property finds that it has been underpaying employees since the spreadsheet was created, what are the possible ramifications? • The property may be responsible

for years of backpay or wage and hour audits;

• Employee relations fallout has the potential to occur;

• Audits of payroll for all other areas are likely;

• Media stories could surface result-ing in a public relations nightmare;

• The negative effects can often spread corporate wide, due to bad publicity.

sUm of the issuesHow does this happen? In many cases, the answer lies in one or more of the following explanations:• Miscommunication between the

users of the spreadsheets;• Misunderstanding of the spread-

sheets output or required input;• Data entry errors;• Invalid references;• Overwritten formulas (intentional

or errant);• Lack of testing, validation or

auditing;• Lack of security or protection.

guru’s and gizmos of excel: Are You one or the other... or botH?Of the estimated 5.6 million users of Excel there are a percentage of gurus who can train Excel to perform magi-cal functions on spreadsheets and there are the gizmos who are charged with direct input looking for a result. While the gurus have the experience and

knowledge, they may be suspect to not understanding the results of these worksheets, and our gizmos could be the ones altering the outcome.

Occasionally an innocent work-sheet that has performed miracles for the operation gets a facelift. At times, a new entity or line is added/deleted and the gizmo makes the changes us-ing Copy>Paste or Edit>Find/Replace which appear to work perfectly, but does it? Both the guru and the gizmo have the same intentions to make this worksheet perform an analysis or cal-culation with speed and accuracy, and together they must remain in sync.

For example, a formula drafted by the guru contains an absolute reference denoted by the “$” which is retained during the Copy or Find>Replace action by the gizmo. The gizmo is pleased with the results because it appears the formula is still intact and the spreadsheet works. Another issue is the dreaded “stepped on” action in which a user accidently or intention-ally forces the results by revising or even falsifying the formula because they know the response is inaccurate. Day in and day out, these spreadsheets are manipulated by users of all kinds and over time the legacy spreadsheet now contains pitfalls.

Excel has an inherent function that maintains functionality when you add or delete a line or column and the formula performing a calculation of your data will be automatically edited to perform as expected. As these types of alterations become common, inspection of the calculations' integrity become essential.

A simple test is to highlight the cell formula and tap the F2 key which will display the cells used for the calcula-tion. Excel will place a colored box around each cell referenced in the formula. There might be lines that are not part of this formula and not boxed when performing this test, but there is a possibility that during past edits one of these lines SHOULD have been part of the change. When was the last time the guru and gizmo tested your tried and true worksheets for accuracy?

Formula for success in excelOverall, it is all too easy for an error to creep into a spreadsheet and to fester there undetected. As the above examples and news stories illustrate, spreadsheets have very real risks for the hospitality industry and small errors can cost millions. While Excel is an invaluable tool, the use of it for vital data and decisions must be care-fully managed:• Validate and test formula outputs

with known results or apply a regression test that compares ex-pectations to the response.

• Compare the original validated spreadsheet as a baseline that has not been updated or altered to check that the version in use returns correct and accurate calculations for the same criteria.

• The guru and the gizmo may be one in the same, and in these cases the testing of the original spread-sheet needs to be completed by an independent user before being put into publication.

• One of the best ways to prevent ma-nipulation of the output is to have the guru embed proven macros into the spreadsheet and protect cells containing vital information and prevent the gizmo from changes without proper control or approval.

• Another option is to avoid spread-sheets for key processes and instead leverage existing software and reports designed specifically to manage such functions.

Challenge yourself or your team to review your key spreadsheets. The statistics show nine out of 10 will have errors — can you beat those odds?

And remember, Excel is perform-ing the tasks that you have asked it to do. It is your responsibility to validate that one bad cell doesn’t become a formula for disaster. ■

source• PriceWaterHouse Cooper. The Use

of Spreadsheets: Considerations for Section 404 of the Sarbanes-Oxley Act. July 2004.

❘❙ Financial management ❙❚

30 Fall 2013

❘❙ Fraud prevention ❙❚

effective anti-fraud controls relates to how fraudulent schemes were uncovered and how much the amount of damage caused by fraud was reduced when a spe-cific control was instituted.

When determining the usefulness of a fraud prevention control for an or-ganization, it is helpful to consider how fraud is typically uncovered from the perspective of the size of the company affected, as well as from the type of fraud occurred. Figures 1 and 2 (page 31) from the Report provide this information.

A retrospective of how real frauds could have been prevented

cAse stUDies oF FrAUD iN tHe HospitALitY iNDUstrY

Anna McFarland , CFE, CHAE, CHTP, CPA (annamcfarland36@gmail.com ) is a global hospitality consultant based in Kaufman, Texas. She is also a proj-ect leader on the Global Hospitality Accounting Common Practices, HFTP Global Past President and a frequent speaker at HFTP educational events. Phil Newman, CPA (philip.newman@mcgladrey.com) is a partner at McGladrey Pullen, LLP based in Ft. Lauderdale, Fla. He is also a frequent speaker at HFTP educational events.

By Anna McFarland , CFE, CHAE, CHTP, CPA and Phil Newman, CPA

At more than 270 pages, the 2012 Report to the Nations on Occupational Fraud and Abuse

(the Report) issued by the Association of Certified Fraud Examiners (ACFE) can be difficult to digest. However, as one might expect, the biannual publication provides valuable insight, supported by real world statistics, into the various facets of fraud.

Financial professionals in the hospitality industry might wonder how much of this information is per-tinent to their organizations and their individual responsibilities in relation to improving fraud prevention and detection. This article offers a review of two cases of fraud — one at a hotel and one at member-owned club — and demonstrates how the findings of the Report could have been used to pre-vent or detect the frauds earlier.

For purposes of this article, the major sections of the Report are focused on: the cost of occupational fraud; how it is committed; how frauds are detected; the profile of the organizations falling victim to fraud, including a discussion of their controls; and details regarding the perpetrators of fraud.

While it is interesting to understand the overall impact of controls in these cases of fraud, the most powerful in-formation to help companies develop

The Bottomline 31

❘❙ Fraud prevention ❙❚

Regardless of the size of victimized organization, a tip proves to be the most common method of detection — 36 percent of the time for small entities (defined as those with less than 100 employees) and nearly 47 percent of the time for those larger organizations. Management review is also shown to be critically important for all compa-nies in detecting fraud. Meanwhile, it is interesting to note that fraud in all classifications of organizations was more likely to be caught by accident than by external audit. This statistic serves as a reminder of the purpose of external financial statement audits as it relates to detection of fraud.

The ACFE classifies fraud schemes into three broad categories: Asset Misappropriation Cases, Corruption Cases and Financial Statement Fraud Cases. Again, as depicted in Figure 2, regardless of type of fraud, the most common method of detection is a tip. External audits prove to be more use-ful detecting financial statement fraud than either of the other two categories of fraud. Internal audits, uncommon in private clubs, are frequently conducted by hotel and casino organizations and appear to be equally effective in detecting all three types of fraud.

In another attempt to measure the effectiveness of controls, the Report compares the median loss suffered by those organizations that had each anti-fraud control in place with the median loss in companies that did not have that control (page 32). While all controls were led to a reduced median loss, formal management reviews, em-ployee support programs and hotlines were associated with the largest reduc-tions in financial losses. Entities that did not have any of these three con-trols in place suffered median losses that were approximately 45 percent larger than organizations with these controls. These findings are interest-ing in that they suggest that manage-rial reviews and employee support programs, at least in terms of dollars of fraud prevented, are just as effective as hotlines, with fraud training also proving to be highly effective.

0 10 20 30 40 50

Tip

Management Review

Internal Audit

By Accident

Account Reconciliation

Document Examination

External Audit

Notified by Police

Surveillance/Montioring

Confession

Other

IT Controls

36.1%46.6%

Figure 1. Detection method by size of Victim organization

■ <100 Employees■ 100+ Employees

0.5%1.4%

1%1%

1.9%2%

2.4%1%

4.3%2.3%

4.8%2.3%

5.3%4.7%

7%3.2%

9.9%16.5%

12.8%4.1%

14%15.1%

0% 10% 20% 30% 40% 50% 60%

Tip

Management Review

Internal Audit

By Accident

Account Reconciliation

Document Examination

External Audit

Notified by Police

Surveillance/Montioring

Confession

Other

IT Controls

42.1%54.1%41.9%15%

12.4%6.7%

7.4%4.3%4.8%

5.3%0.9%3.8%

4.5%2.2%1.9%

3.3%3.3%5.7%

2.6%4.8%14.3%

2%0.9%1.9%

1.7%0.9%1.9%

1.1%0.7%1.9% 1%

1.3%1%

14%14.3%14.3%

Figure 2. Detection method by scheme type

■ Asset /Misappropriation Cases

■ Corruption Cases■ Financial Statement

Fraud Cases

Source: 2012 Report to the Nations on Occupational Fraud and Abuse

32 Fall 2013

Application to the Hospitality industrycase study 1: private member-owned country clubThe general manager (GM) of a pri-vate club pleaded guilty to stealing al-most $2 million from the club through fraudulent payrolls and illegally-writ-ten checks. He admitted to mail fraud, wire fraud and money laundering in connection with a scheme to steal from the club.

Over a period of five years the GM created fictitious employees, kept former employees on the payroll and placed individuals on the payroll who provided personal services to him. He made electronic payments to these “ghost employees” and deposited them into his personal accounts.

The GM also wrote checks drawn on country club accounts to pay his personal expenses, including leasing and buying vehicles for his personal

use. He wrote checks made payable to his personal business. The GM and his colleague, the controller of the club, were indicted in U.S. District Court on numerous counts each of wire and mail fraud.

The scheme came to light after the club appointed a new treasurer who questioned duplicate invoices that had been presented to her for approval and payment.

This case ostensibly involved as-set misappropriation, though some financial statement fraud would have been involved, as well to conceal the fraudulent transaction. Focusing therefore on the detection methods discussed in Figure 2, it is evident that this scheme could have been detected in its infancy with a tip. Given that the scheme lasted for approximately five years, it is necessary to ques-

tion how such a large fraud, which involved several functions of the clubs finances (e.g., payroll, cash and fixed assets), was not noticed or reported by someone with the club. Presumably the bogus expenditures were charged to various departments — under the noses of each department head.

Questions that emerge include whether the department heads were part of the scheme or simply too scared to report anything for fear of losing their jobs, and whether the club em-ployees had a mechanism for reporting any unusual occurrences. Given that two senior members of the manage-ment team were involved, it could have been that the employees would not have known how or to whom they were to report issues. Instances like this make the value of a hotline unquestion-able, though staff must be trained as to its appropriate use.

median Loss based on presence of Anti-fraud controls

ControlPercent of Cases

Implemented Control in PlaceControl Not

in Place Percent Reduction

Management Review 60.5% $100,000 $185,000 45.9%

Employee Support Programs 57.5% $100,000 $180,000 44.4%

Hotline 54.0% $100,000 $180,000 44.4%

Fraud Training for Mgrs/Execs 47.4% $100,000 $158,000 36.7%

External Audit of ICOFR 67.5% $120,000 $187,000 35.8%

Fraud Training for Employees 46.8% $100,000 $155,000 35.5%

Anti-fraud policy 46.6% $100,000 $150,000 33.3%

Formal Fraud Risk Assessments 35.5% $100,000 $150,000 33.3%

Internal Audit/FE Department 68.4% $120,000 $180,000 33.3%

Job Rotation/Mandatory Vacation 16.7% $100,000 $150,000 33.3%

Surprise Audits 32.2% $100,000 $150,000 33.3%

Rewards for Whistleblowers 9.4% $100,000 $145,000 31.0%

Code of Conduct 78.0% $120,000 $164,000 26.8%

Independent Audit Committee 59.8% $125,000 $150,000 16.7%

Management Certification of F/S 68.5% $138,000 $164,000 15.9%

External Audit of F/S 80.1% $140,000 $145,000 3.4%

Source: 2012 Report to the Nations on Occupational Fraud and Abuse

❘❙ Fraud prevention ❙❚

The Bottomline 33

That leads to the effect anti-fraud training might have had in this case. Had employees been made aware of their responsibilities to prevent and de-tect fraud and to be attuned to instanc-es of unusual practices, then the fraud may have been detected much earlier. The Report notes that anti-fraud train-ing reduces the duration of fraud by 50 percent — the same reduction in duration attributed to an entity having a hotline in place. In fact, the ACFE study notes that something as simple as job rotation/mandatory vacation, reduces the duration of a fraud scheme by as much as 62.5 percent. In this country club case study, forced vaca-tions for the controller and general manager could have led to a much smaller loss.

While managerial review is noted as a common detection method, by size of organization or by type of fraud scheme, in a case like this one, the effectiveness of such activity might be difficult to appreciate given that mem-bers of management were complicit in the fraudulent activity. In the private club world, a case like this highlights the importance of board and commit-tee oversight in financial governance matters. While such bodies should not be involved in day-to-day operations, given the limited controls in most clubs, those who are in financial stew-ardship roles, such as the treasurer, must be diligent in their duties. In this case, ultimately it was the treasurer who exercised her role as a reviewer to uncover the size of the ongoing fraud.

case study 2: prestigious boutique Hotel The owners of a well known boutique hotel in a major metropolitan area an-nounced that an investigation into an alleged fraud scheme at the property had recently been concluded. The vice president (VP) of operations of the management company that operated the hotel had admitted to stealing more than $500,000 from the hotel and

similar properties also managed by the management company. The scheme was uncovered during the first finan-cial statement audit of the hotel in many years when unusual items on the bank reconciliation were questioned by the auditors.

With the assistance of the hotel’s controller, the VP had used cashiers checks to withdraw funds from the hotel’s bank accounts for personal use. The scheme had been hidden from auditors of other hotels in the group by circulating funds from one hotel to another just before the financial state-ment audit commenced.

The investigation into the fraud had uncovered numerous discrepancies in the hotel’s records, including checks that had been cashed without signa-tures, as well as notices to auction the hotel, issued by local taxing authori-ties, for non-payment of real estate taxes. It was also discovered that the VP had stolen payroll tax deposits from his previous employer and was working through a payment plan to repay the amounts stolen.

This case also involves financial statement manipulation to disguise the theft of assets, namely cash. Given that the fraud focused on the theft of cash under the control of two individuals, one might question the impact a hotline would have had in this situation. That is until noticing that the fraud was hidden from other audit firms in the group by circulating funds among the various properties. What questions did the controllers at the other hotels ask when transfers were made close to year-end and before the annual external audit might have commenced? If those control-lers had a hotline to which they could have reported concerns, the losses could arguably have been reduced by as much as 45 percent.

The hotel case highlights an area of the Report that not yet touched upon, but is one that deals with an impor-

tant aspect of fraud prevention. In the Report, less than six percent of the fraudsters had prior convictions, while a similar proportion had been charged, but not convicted. These statistics should not diminish the importance of background checks on employees in positions of trust. In this hotel sce-nario, such a background investigation would arguably have uncovered a prior offence(s) committed by the VP.

The hotel case lasted about three years before the auditor uncovered the discrepancy in the bank reconciliation. While the duration of a fraud scheme ranges from 12 to 36 months in the Report, depending on the category of the fraud, the median duration for all cases in the study was 18 months. It would seem that a greater level of financial review by other management company personnel, including but not limited to an effective internal audit department, would have prevented or expedited the discovery of this fraud.

HospitalityClearly, hindsight is always 20/20 and it is easy to look back at cases of fraud to identify what could have been done differently to stop or prevent the fraud in the first place. The reality is that no organization or department is immune to fraud. All members at any organiza-tion have roles to play in respective positions and everyone has an inherent responsibility to understand what con-stitutes fraud as well as how to prevent and detect it.

For those who are committed to fraud detection and prevention, a de-tailed review of the 2012 Report to the Nations on Occupational Fraud and Abuse is highly recommended. ■

source• Association of Fraud Examiners.

2012 Report to the Nations on Oc-cupational Fraud and Abuse. http://www.acfe.com/rttn.aspx

❘❙ Fraud prevention ❙❚

34 Fall 2013

❘❙ Data security ❙❚

The Payment Card Industry (PCI) Data Security Standard (DSS) Self Assessment Questionnaire

(SAQ) is a crucial yet difficult part of any PCI journey. Typically, SAQ ques-tions are very technical, involved and leave little room for guesswork.

As a PCI QSA (Qualified Security Assessor), my ultimate goal in helping a customer successfully and truthfully complete their SAQ is to reduce PCI scope. Being ‘in scope’ indicates any system component included in or con-nected to the card data environment, comprised of people, process and technology that stores, processes or transmits cardholder data. Reducing PCI scope ultimately boils down to reducing the areas in which payment card data touches.

For example, if a merchant was originally required to complete an SAQ D, my goal (and the goal of all businesses in the payment card indus-try) should be to help them transition to the less technical SAQ C. Not only does scope reduction relieve mer-chant frustration with technical PCI requirements, but also decreases cost, resources and the risk of payment data theft. Here are the five best ways to reduce your PCI scope.

1. segment Your NetworkThe quickest and easiest way to limit the scope of PCI requirements is to segment your network so that card-holder data and the systems that pro-cess, transmit and store it are isolated from all other network processes.

Most card data environments aren’t created with PCI compliance in mind.

FiVe WAYs to reDUce sAQ scope

Gary Glover CISSP, CISA, QSA, PA-QSA is QSA director for SecurityMetrics and has completed over 100 PCI DSS, PABP and PA-DSS security audits. He is a speaker at the 2013 HFTP Annual Convention & Tradeshow. He can be reached at gglover@securitymetrics.com.

By Gary Glover, CISSP, CISA, QSA, PA-QSA

Reducing the scope for the PCI DSS Self Assessment

Questionnaire (SAQ) ultimately boils down to reducing

the areas in which payment card data touches

The Bottomline 35

mitel.com/industry-solutions/hospitality

Virtually, you Can HaVe it all.mitel® hospitality solutions

36 Fall 2013

❘❙ Data security ❙❚

36 Summer 2013

In smaller merchant environments, it is common to see a flat network where cardholder data is unsegmented and unsecured from the rest of the net-work. The reason? Flat networks are extremely simple to understand and build. Organizations are often unaware that processing card data on their un-segmented network brings their entire network under PCI scope.

At a minimum, network segmenta-tion entails logical separation between networks, usually provided by an industry-standard firewall. Though a firewall sits between network zones to limit network traffic, its presence between network segments doesn’t necessarily mean secure and effective segmentation. Physical segregation between networks would provide an even more segmented and secure processing environment.

Segmenting a network can be quite difficult based on the complexity of the processing environment, but QSAs and other security professionals are

available to assist. By partitioning the places card data travels into dedicated card zones from all other aspects of your business network, you reduce potential card data exposure.

A word of caution. Too many segments can lead to environment bottlenecks and complex firewall rules. Keep segmentation simple, and it will lead to better security.

2. stop storing payment Data Do you have unprotected card data on your point-of-sale or back office systems waiting to be harvested and sold for fraudulent purposes? Many merchants answer this question with a vehement no; but in reality, 71 percent of businesses store payment card data, often unknowingly (2012 Payment Card Threat Report, Securi-tyMetrics). While conducting onsite security assessments, I often see problems that result in insecure data storage — even on very sophisticated merchant systems.

It doesn’t matter if an organization stores one payment card number, or a million. Electronically storing any payment data automatically indicates a merchant must complete SAQ D, the most complex SAQ required by the PCI Security Standards Council (SSC).

The first step is to discover where card data is used and if it’s being stored. Just like flotsam in a river gets caught in eddies, card data can be deposited on systems that may or may not be directly involved in POS trans-actions. Knowing where to look for potential data eddies is half the battle.

The other half is finding, imple-menting and using a good data dis-covery tool that identifies card data in its various forms and alerts you to its location. Tools including CardRecon (GroundLabs), Spider (Cornell Uni-versity) and PANscan (SecurityMet-rics), can be used to search computer systems for data. The PCI SSC recom-mends data discovery methodologies to be used at least annually.

Don’t forget to run these search tools on your e-commerce web serv-ers, old systems historically dealing with card data and in departments such as accounting, sales and marketing.

Once unsecured card data is found, you must securely remove it using a secure removal or wipe process. (Hint, don’t just use the delete key — it’s not really gone after that.)

Now that your process and systems are clean, you need a program to keep them that way. Clear text credit card data has a way of creeping up again where you don’t expect it to be. De-fine and follow a process of periodic data discovery cycles at least annu-ally to recheck systems and ensure they remain free of unprotected card information.

3. make the switch to p2pePoint-to-point encryption (P2PE) ensures payment data is secure by encrypting card information inside the POS hardware and sending it over a network to a service provider for decryption outside of the merchant network.

The Five Best Ways To Reduce Your PCI Scope1. Segment Your Network

Segment your network so that cardholder data and the systems that pro-cess, transmit and store it are isolated from all other network processes.

2. Stop Storing Payment DataIt doesn’t matter if an organization stores one payment card number. Elec-tronically storing any payment data automatically indicates a merchant must complete SAQ D, the most complex SAQ required by the PCI SSC.

3. Make the Switch to P2PEPoint-to-point encryption ensures payment data is secure by encrypting card information inside the POS hardware and sending it over a network to a service provider for decryption outside of the merchant network.

4. Tokenize Card DataTokenization occurs when sensitive card numbers are replaced by a non-sensitive surrogate value, also known as a token. Tokenization can reduce the components of a merchant system that need to be protected by PCI requirements, thereby reducing the amount of SAQ questions required.

5. Outsource Your ProcessingOutsourced IT companies can actually help remove the burden of compli-ance. Although, companies should note that outsourcing doesn’t absolve them from the responsibility to process payments securely.

The Bottomline 37

❘❙ Data security ❙❚

Troy Leach, CISSP, CISA, chief technology officer for the PCI SSC said of P2PE, "The PCI Council has never made this statement before — that through this effort you might be able to simplify your [PCI DSS] validation requirements." Using P2PE, merchant scope is reduced to the POS device and the delivery and installa-tion procedures.

The best practice for a P2PE solu-tion is to work with a service provider or acquirer that offers a validated P2PE solution with which to replace your current POS terminal.

4. tokenize card DataTokenization occurs when sensitive card numbers are replaced by a non-sensitive surrogate value, also known as a token. Properly implemented, tokenization can reduce the compo-nents of a merchant system that need to be protected by PCI requirements, thereby reducing the amount of SAQ questions required of a merchant.

As stated in the PCI SSC’s infor-mational supplement on tokenization, "storing tokens instead of PANs is one alternative that can help to reduce the amount of cardholder data in the environment, potentially reducing the merchant’s effort to implement PCI DSS requirements" (PCI SSC, 2012).

Implementing tokenization could simplify the requirements of PCI because cardholder data storage is centralized and sensitive data environ-ment minimized. Businesses can work with QSAs, acquiring banks, proces-sors or service providers to securely implement tokenization services.

5. outsource Your processingWhile its admirable to have a DIY process surrounding business op-erations, small to midsize companies should seriously consider outsourcing payment processing. Outsourced IT companies can actually help remove the burden of compliance.

To illustrate, let me tell you how to become an SAQ A merchant. In order to be privileged enough to fill out the easiest, 13-question SAQ, all pro-cesses involving payment cards must go through a third party, no electronic storage of cardholder data is allowed, and you may only have card-not-pres-ent transactions.

Companies should note that out-sourcing doesn’t absolve them from the responsibility to process payments securely. The merchant still owns and is responsible for verifying PCI re-quirements are met, even if the process is outsourced.

Use caution when selecting IT vendors who use host information in the public cloud. Public cloud comput-ing PCI compliance can be extremely difficult because of potential co-hosted customers existing on the same host server. Another problem with public cloud computing is lack of network segmentation. It’s difficult to know where a business’ virtual hosting serv-ers are physically located and if they are properly segmented from other customers. Consequently, there are very few PCI-validated public cloud offerings worldwide.

go and DoWhether through recent and rap-idly evolving technologies or age-old methods, reducing scope has recently become more and more attractive to businesses. As a QSA, I highly recom-mend scope reduction to all varieties of merchant. Not only does it reduce the time and resources required to become PCI compliant, but it also provides significantly more security. Remember that PCI DSS compliance and valida-tion is not a quick or easy process, but reducing scope is one of the best ways to lighten the PCI load and reduce risk of payment data theft. ■

38 Fall 2013

HospitALitY soFtWAreValue proposition or fashion statement?

Increasingly in recent years, the hospitality industry — the industry providing a personalized pleasant

experience to unknown guests — has been synonymous with the use of technology. Yet, finding the right balance between high tech and high touch has always been a moving target for most hospitality organizations. De-cision makers attempted to understand the fine equilibrium between offering personalized services to an increas-ingly demanding market of consumers and the efficiencies resulting from automating processes, operations and communication. Balancing this complex business environment should provide clever decision-makers an opportunity to build upon the compe-tencies of the organization and create a seamless mix of technology and service delivery processes that could eventually result in value added to the experiences of consumers. With this philosophy in mind, over time, hospitality organizations began creat-ing value, even in turbulent economic times, through the use of technology, perpetuating the traditions of the service culture, but at the same time irreversibly transforming the hospital-ity experience.

In hospitality and beyond, hard-ware and software complement each other to allow seamless completion of business tasks. While generally hardware gravitates around a few popular platforms (e.g., personal com-puter, tablet, mobile phone), there are unlimited possibilities to make those platforms come alive via software applications. For example, at the time

Cristian Morosan, Ph.D. is an assistant professor at the University of Houston. He is also a speaker at the 2013 HFTP Annual Covention & Tradeshow. He can be reached at cmorosan@central.uh.edu.

By Cristian Morosan, Ph.D.

To realize technology benefits, software must be

viewed as a set of tools and strategies that are

meant to allow the organization to create and sustain

a better alignment with its business environment

❘❙ Hospitality technology ❙❚

The Bottomline 39

of this writing the Apple app store was offering more than 900,000 applica-tions. In an industry in which tech-nology is increasingly gaining new ground, understanding and properly operating software becomes a critical task. The new hospitality organiza-tion has become someone who can understand not only the operational role, but rather the strategic role of the technology in the picture of hospitality services. At the same time, consumers face a critical task, as they are increas-ing their roles as value co-creators through the use of technology. The un-precedented development of software available to guests creates a wealth of opportunities for hospitality businesses to improve the value proposition of their offerings and to continue to cre-ate memorable hospitality experiences.

Determine strategyWhat do we do with the software? Fulfill a vision? Determine the strategic course?There are many providers of technol-ogy for the hospitality industry today. They all try to provide the best tools for decision-makers to increase the value proposition that they normally deliver in an operation. Given the complex and fragmented character of the industry, hospitality technology, especially software, must be viewed as a set of tools and strategies that are meant to allow the organization to create and sustain a better alignment with its business environment. While the software of the past was just a tool to optimize some of the processes that were driving the most important functions of the hospitality operation, today’s software has moved beyond that point. Today’s software assists decision-makers in building strate-gies that can offer an edge over the competition, and allow them to sustain the competitive advantages that they create even from using resources that have nothing to do with the technol-ogy. In short, software can assist orga-nizations in fulfilling their visions.

There are three ways in which the technology can help hospitality operations fulfill the vision: optimize

processes that are internal and can lead to a better way of deploying resources; understand the dynamics of the busi-ness environment and allow the orga-nization to be better positioned within this environment, in order to achieve its longer-term profitability and market alignment goals; understanding the consumers, which, in turn, leads to a better alignment of the business orga-nization with its target market.

If a business organization uses software that allows it to excel into the aforementioned strategic directions, it can develop a solid strategic course, even in turbulent economic times. In addition, covering these three direc-tions with the appropriate strategies will allow the organization to be able to sustain its strategies even when the software becomes naturally obsolete. In situations of obsolescence, even with obsolescence, the function ful-filled by particular software should not be eliminated from the strategic arse-nal of the organization. If the strategic course is well-defined by the organiza-tion, an obsolete application can be easily replaced with a substitute that allows the organization to still fulfill that clearly defined strategic role.

Determine primary DriverChicken or egg? Do designers, business-es or consumers determine the course of software development?It is imperative to ask the question of primacy because it is important to understand what is the primary driver of the current mixture of software deployment and consumer/employee software adoption in the hospitality industry. On one hand, technology de-signers envision certain directions for software development and create those solutions with the help from users. On the other hand, certain functions of the organization become more naturally open to software innovation, and, in those cases, it is easier for the consum-ers or employees (as actual users of software) to provide or tacitly lead the way toward the development of new software applications.

In most cases, the industry witness-es combination of both approaches: software applications are proposed by designers who have a good under-standing of the directions in which the market of users (consumers and employees) are headed. What remains challenging is developing an accurate idea of the profitability or just of the

3 WAYs to Use software to Fulfill a strategic courseIf a business organization uses software that allows it to excel into these strategic directions, it can develop a solid strategic course, even in turbulent economic times. The software should:

1. Optimize processes that are internal and can lead to a better way of deploying resources;

2. Understand the dynamics of the business environment and allow the organization to be better positioned within this environment, in order to achieve its longer-term profitability and market alignment goals; and

3. Understanding the consumers, which in turn, leads to a better alignment of the business organization with its target market.

❘❙ Hospitality technology ❙❚

40 Fall 2013

adoption curve of the software even before deployment is being initiated by hospitality organizations.

Yet, even though it is hard to anticipate the adoption process of any type of software technology, there are numerous and meritorious develop-ment efforts to develop new technolo-gies that would streamline some of the business processes that are native to the hospitality industry, and help the industry create value for the consum-ers. Being designed according to this principle, many of the latest develop-ments in software technology provide, at least from the angle of this analysis, the plus of value that is added to the hospitality organization deploying various novel software technologies. For example, today’s software ap-plications can be characterized by an unprecedented degree of integration, allowing business to have ultimate control over the design of their tech-nology infrastructure, and thus, over the experiences of its guests.

Determine best UseValue? Detractors of value?If we examine the value proposition that software can bring to a hospital-ity organization attempting an optimal resource deployment, one can observe a number of notable trends that are likely to persist. For example, one of the most important consequences of using distribution/revenue manage-ment software is basically redesigning the critical role of the PMS system within the distribution picture of the organization. If the roles of various players in the distribution picture are being optimized by using technologies that allow the organizations to have a better understanding of the relation-ships within distribution, the organiza-tion is in a better position to respond to changes in the market that dictate a certain strategy (e.g., RezDelivery from EZYield).

Another example would be to allow some of the processes to take

over platforms that were not tradition-ally designed for these processes. For example, an important current trend is to integrate some of the human resource processes into software that allows for a better operation, and therefore, streamlining most of the human resource tasks that the organi-zation faces.

The second strategic direction refers to using software to better understand the complex network of relationships that take place when the hospitality organization immerses into its business environment. For example, one of the most common type of software is the cloud-related, which basically allowed organizations to optimize their strategic alignment and exercising better control of their costs, thus adding value to the overall organization. In addition, there are software applications that allow an organization to have a better insight into the dynamics of its internal (e.g., suppliers, intermediaries) and external (e.g., economic, demographic, social, technological) environment, which can induce changes in the way the organization operates.

Perhaps the most important strategic direction for the use of software in the hospitality industry points toward the consumers. Such an important direction can be viewed from two perspectives: consumers as users, and design software capable of optimizing all points of contact with the organization; and understanding the consumers and better anticipat-ing their decision making sequences in order to provide a superior value proposition that will attract them, and eventually transform sporadic into repeat business. Examples of software that can ultimately guide the consumers through the most complex purchasing tasks can be found at every stage of their purchasing se-quences, from the persuasive stage, in which prospective consumers come in contact with information that has a

strong persuasive flavor (e.g., recom-mendation systems, notifications on mobile environments, offers of ancillary services based on location), through the fulfillment stage, where consumers can use software during the consumption of their experiences to enhance value (e.g., self-service kiosks, security software found in biometric door locks and systems of payment), to the final stages of the consumer behavioral sequence, where the consumers share their experiences with others (e.g., review platforms, social media web sites).

conclusionIn conclusion, if used correctly, ac-cording to sound strategic principles, any type of software congruent with the other platforms that the orga-nization already operates can add substantial value to the organization. While the choice of software technol-ogy can be overwhelming, the use of certain software should not be a goal in itself. If the use of certain soft-ware is the goal and not the means to a broader strategic goal, the full process of adopting such software may result in only a very expensive fashion statement. While the path to finding an unified solution that works best for all the organizations and hospitality may not work due to the breadth and fragmen-tation of this industry, finding soft-ware that adds value for specific tech-nology and organizational contexts may represent difficult tasks. Such tasks may be exacerbated by the mul-titude of choices that the hospitality decision-makers have at their disposal. However, in the end, if the strategic processes are well understood, the software should nevertheless be able to propagate the value proposition that the hospitality organization already provides, perpetuating it and allowing it to fulfill its goal of rewarding its owners, employees and guests via its products/services. ■

❘❙ Hospitality technology ❙❚

The Bottomline 41

tHe mANAgeriAL FLAsH sALes DAsH is tHere ADVANtAge or DisADVANtAge At tHe FiNisH LiNe?

There is debate whether flash sales web sites are a bless-ing or a curse for the lodging

industry. Blessing because these web sites alleviated the depressed demand induced by the recession. A curse because these web sites have turned into a "pac-man" character who drains revenues away from the lodging indus-try. Flash sales in the lodging industry (e.g. Groupon Getaways, LivingSocial Escapes, Jetsetter, etc.) thrived as they gobbled up unused hotel room inventory. In its first year of operation, LivingSocial Escapes, for example, featured hotel deals from about 800 properties, sold about 500,000 room nights, which corresponds to about 45,000 room nights per month, and provided rooms to approximately 1,500 travellers per night. These are impressive stats for any distribution channel that sells perishable inventory. But, what are flash sales web sites? How do they work? And, are they beneficial or detrimental to the U.S. lodging industry?

Flash sales web sites provide a time-limited deep discount for the advance purchase of products and ser-vices. On average, most hotels that use flash sales as a means to market and distribute rooms provide a 50 percent discount. This deep discount leads to debate among managers regarding the effects that such a deep discount on rates may have on the overall performance of their hotel. Effects of notable concern regarding specific measures that could affect future hotel

Katerina Berezina, CHTP is a Ph.D. candidate at the University of Florida in Gainesville. She is also chair of the HFTP Social Media Advisory Council and a frequent speaker at HFTP educational events. She can be reached at katerina@katerinaberezina.com. Kelly Semrad, Ph.D. is the associate director for the Eric Friedheim Tourism Institute at the University of Florida in Gainesville. She is also an advisor to the HFTP student chapter at the University of Florida. She can be reached at ksemrad@hhp.ufl.edu.

By Katerina Berezina, CHTP and Kelly Semrad, Ph.D.

Interviews with 46 industry professionals experienced with flash sales reveal the pros and cons to this quick distribution method.

❘❙ Distribution ❙❚

42 Fall 2013

performance include: a disintegrating bottom line, the rate of return, brand equity and value, attracting the right customer mix, rate recovery efforts and pricing strategies.

interviewsThe ongoing controversy regarding flash sales reveals some deep suspi-cion on the effectiveness of deep dis-counting as a pricing strategy. Should hotels discount? If yes, when, and through which media? We interviewed 46 industry professionals regard-ing their experience with flash sales promotions. The interviews included general managers, revenue managers, and sales and marketing managers (Chart 1 above) from luxury, bou-tique, independent, franchised hotels

and management groups (Chart 2 at left), as well as from first and second tier tourism destinations across the U.S. The interview data assessment revealed common themes of potential interest to other managers who are considering using flash sales, or those who have used flash sales promotions to move inventory.

prepare a Flash sales Deal. A flash sales deal may include room nights only, or be packaged together with a value adding service. A value adding service is usually selected by a hotel to increase the attractiveness of the promotional package for customers, and/or highlight particular features of the hotel. For example, different hotels may have used welcome cock-tails, a round of golf or an aqua park admission as value adding services. When preparing a flash sales deal, it is important to consider several other aspects, such as promotional time and duration, price, redemption period, etc.

AdvantagesThe interviews revealed several categories of prospective benefits that flash sales may bring to the hotel in-dustry; they include filling immediate occupancy needs, increasing expo-sure, reaching new customer segments and inducing first time customer trial.

increased occupancy. All interview participants found flash sales to be a useful channel to increase occupancy for particular need periods and sell in-ventory that otherwise would remain unsold. A general manager of an in-dependent property stated that “flash sales help to fill the rooms that oth-erwise would stay empty.” A revenue manager from a hotel corporate office supported this opinion by saying that, “flash sales solve the problem of the low demand.”

increased exposure. The inter-viewees across different subgroups mentioned that flash sales promo-tions help to, “increase exposure and put your name out there.” When an e-mail blast goes out, hotel informa-tion reaches the inboxes of thousands

of flash sales subscribers, deliver-ing hotel’s information right to their inboxes. A general manager of an independent all-suite hotel mentioned: “It is essentially a cost-free way for us to drive traffic to our own web site, because when these e-blasts go out, the consumers will migrate to our web site for more information; and, Google Analytics substantiates that benefit. So [flash sales generate] market exposure at almost no cost...”

customer Acquisition. Another benefit that seems to be a strong theme is inducing first time customers’ tri-als and customer acquisition. Flash sales companies own large customer databases that they use to distribute promotions. It allows flash sales com-panies to deliver promotions to a wide audience and attract new customers to the advertised hotels. Moreover, the promotions are usually time-limited, which puts pressure on the customer to make their decision as soon as pos-sible before the promotion goes away. A combination of special discounted prices, value adding services and a limited timeframe may stimulate cus-tomers to try hotels that are promoted on flash sales web sites. And, of course, hotels are striving to provide an excellent service to bring first trial customers back for a repeat visit.Disadvantages On the other hand, participants have also mentioned several disadvantages of distributing hotel inventory via flash sales web sites. Such disadvan-tages include high distribution costs, violations of rate parity, and poten-tial negative impacts on brand and revenue.

Distribution costs. A majority of interview participants mentioned high distribution costs as one of the chal-lenges of running flash sales promo-tions. Participation in flash sales web sites requires not only a high discount to qualify for the promotions, but also a commission to the flash sales web site. One of the general managers participating in the interviews stated, “Well, obviously, the disadvantage is that you’re paying a commission to

Respondent Profile

Other, 7%

General Manager,

17%

Marketing, 26%

Sales/e-Commerce,

30%Revenue Management,

20%

1. Position

2. Company

Hotel e-Marketing Company, 2%

Hotel Property,

35%

Hotel Management

Company, 35%Corporate

Office, 28%

❘❙ Distribution ❙❚

The Bottomline 43

somebody, which is a fairly high com-mission. You’re paying 40 percent to 50 percent commission which is very high.”

Violation of rate parity. One of the major concerns for the branded properties became the violation of rate parity and best rate guarantee. When hotels are striving to provide the best rates on their own web sites, a flash sales promotion on a third-party web site violates this best rate initiative. However, some hotels found a solution for this challenge by creating special booking codes for the flash sales deal and making them available to their loyal customers on the hotel’s web site.

brand impacts. Some hotel managers were concerned about the impact of using flash sales on the hotel’s brand. The major reason for that concern is that flash sales offer discounted sales that may “cheapen” the property in the eyes of the customers. Also, managers of luxury hotels were worried that flash sales may not reach the target demo-graphic of the luxury segment, and therefore attract customers who would stay in a hotel with a discount, but would not come back at a regular price.

revenue impacts. And last, but not least, a majority of the hotel manag-ers who participated in the inter-views were concerned about nega-tive impacts on revenue. A general manager of an independent luxury hotel mentioned, “The main drawback is that the actual amount ultimately remitted to the hotel is far lower than what our normal rates would yield.” As a consequence, lower rates offered on flash sales web sites may lead to lower ADR and lower position on the STAR reports.

An effective Distribution channelIn summary, a majority of the manag-ers thought that flash sales may be an effective marketing and distribution channel that may be useful for hotels during particular need periods. At the same time, it is important to consider the company’s goals, as well as the po-tential advantages and disadvantages of flash sales. Hotel managers should

develop their deals wisely to prepare a package that would be the most beneficial for the property. A majority of the participating hotel managers shared their opinion that flash sales are here to stay and hotels should keep an eye on the development of this distri-bution channel.

Thus, whether there is an advan-tage or disadvantage at the flash sales finish line is clearly dependent on the

pricing and marketing strategies which hotel managers are using to achieve performance goals. In other words, we cannot speak to whether the use of flash sales will negatively or positively influence the industry. However, we are in agreement that flash sales are a distribution channel that seems likely to not only linger as a distribution channel, but will continue to evolve with technology. ■

Flash Sales: Advantages/DisadvantagesStudy participants stated clear pros and cons to using flash sales based on their own experiences.

ADVANtAges

Increased Occupancy — All interview participants found flash sales to be a useful channel to increase occupancy for particular need periods and sell inventory that otherwise would remain unsold.

Increased Exposure — When an e-mail blast goes out, hotel information reaches the inboxes of thousands of flash sales subscribers, delivering hotel’s information right to their inboxes.

Customer Acquisition — When an e-mail blast goes out, hotel information reaches the inboxes of thousands of flash sales subscribers, delivering hotel’s information right to their inboxes.

DisADVANtAges

Distribution Costs — Participation in flash sales web sites requires not only a high discount to qualify for the promotions, but also a commission to the flash sales web site.

Violation of Rate Parity — When hotels are striving to provide the best rates on their own web sites, a flash sales promotion on a third-party web site violates this best rate initiative.

Brand Impact — A concern is that using flash sales will impact the hotel’s brand negatively. The major reason for that concern is that flash sales offer discounted sales that may “cheapen” the property in the eyes of the customers.

Revenue Impact — Lower rates offered on flash sales web sites may lead to lower ADR and lower position on the STAR reports.

❘❙ Distribution ❙❚