Hospitality Financial Leadership - The Lily Pad
July 10, 2017 12:33pm
By David Lund
When you get promoted to a department head and executive committee position it’s an exciting time in your career. This story is about my experience as a first-time controller.
It all started when the phone in my office rang. At the time, I was the assistant controller at the world famous Banff Springs Hotel, The Castle in the Rockies. It was my “BIG” boss, the General Manager and Regional Vice President, on the line. It was about 10 a.m. and he asked me if I could come to the sister hotel in his region, Kananaskis for lunch. I said, “I think so, I just need to ask the controller here if it’s ok.” He replied, “Don’t worry about her, just get your ass down here.” He said it in a way that made me think he had already talked to her and she was pissed. But he’s the boss so he won this one. I like the way our GM operated, no BS and you knew who was in charge. His nickname was the Commander. We all liked his style, well most of us.
About two hours later I hopped out of my car at the hotel and headed for the accounting office where I met with someone I did not expect, our corporate controller from Toronto. He was a great guy but why was he here and where was my GM.
The corporate controller and I went to lunch. He explained what was going on. The previous controller was fired that morning for not ensuring that a basic internal control system was in place. The chief engineer was ordering supplies form a local hardware store. He would produce purchase orders for typical engineering supplies like light bulbs and filters. Then the hardware store would send a new color TV to the engineer’s house and mail the hotel an invoice for lightbulbs and filters. The hotel would pay the invoice because it matched the purchase order; however, the controller was omitting a crucial step.
All goods received by the hotel required verification by someone other than the person who ordered them. In this case, the controller trusted the chief engineer’s word as he handed in the invoices. This kind of stuff happens more often than you would think.
It is funny how the engineer got caught. He told someone in a local bar what he was doing. He was drunk and bragged about his little scheme. Small towns are not good places to share secrets in a bar. A friend of the person who heard the story was best friends with the wife of the new General Manager of that hotel. The new GM learned about this a few weeks later and he flat out asked the chief engineer what was going on. The engineer vehemently denied any involvement or knowledge. Two weeks later the engineer had not been back to work and the rumor was that he fled to the Caribbean.
My friend the corporate controller and one of his staff had been at the hotel for a few days and it was clear that something was up with the hardware store. The size of the accounts payable file and the amount of spending with this one little store were incredible. When confronted, the previous controller said he was aware that there was no proof of delivery, but he said he was not involved in the apparent fraud. The RCMP was also now involved and there was a criminal investigation. With that, he told me he was heading back to Toronto and my job was to babysit until a controller was found. If I wanted the job it was mine – all I needed to do was apply.
I settled in as best I could. Things in the accounting office were a mess to say the least. People and processes were not being used efficiently and several other internal controls were missing (or only partly functioning). It was the type of mess one would expect to find in a hotel where the controller was asleep at the switch.
About the same time that this was going on and I was getting my feet wet so to speak, word came down that the previous General Manager (who had transferred to a property in Ontario) had been fired for telling one of the owners to F off! I did not know the guy but some of the stories I heard around the hotel made it sound like he was a handful and up to no good – affairs with staff in the suites, parties and use of the hotel for his own personal playground. After a while, some things never surprise me. By no means are all GM’s like this but it only takes a few to spoil the batch. Word then followed that this GM was suing the hotel company for wrongful dismissal (which they all do).
The fraud investigation from the maintenance department was quieting down a bit and I was getting some of the mess cleaned up. One thing that was very odd was the way the capital was being handled. I found a big pile of returned checks and odd invoices. It was unusual that the checks were handwritten and several of the invoices were from the hardware store. There was something fishy about one other invoice; it was for six numbered Robert Bateman prints from an art gallery located in the hotel. That was odd because usually hotels buy art in bulk, not six at a time, and the invoice was a restaurant type, handwritten invoice with the print numbers on it. Well, more stuff for the cops to look at.
The next day I received a very special package in the mail. It was from our corporate law department and it contained a legal form that I referred to as a marital list of common assets. The fired GM was also in the process of getting a divorce. The note on the document said: Have a look at the contents of the common assets, does it look strange? Well, the list read like the inventory of a 25-room hotel. He had literally dozens of VCRs and TVs, several satellite TV systems and the clincher….
He had six Robert Bateman numbered prints and the asset list had the numbers. Could this be any easier? Just yesterday I was looking at an odd invoice for six prints sold to the hotel from a local art shop. Would the numbers be the same?
Sure enough – SIX matches. Holy crap what was going on here?
That was only the tip of the iceberg. Following my discovery, the company sent the one and only internal fraud auditor to our hotel for a thorough investigation along with the RCMP. The investigator spent weeks at the hotel and found several dozen invoices for a host of items that the GM had fraudulently obtained. The total was almost $100,000. The former GM was eventually found guilty of fraud.
This little episode showed me a few things. For one, if people are left on their own, they can do some major damage. Internal controls are critical for ensuring that you know what is going on. We were not able to find any fraud committed by the controller, just sloppy work. The maintenance guy disappeared forever and the former GM got out of jail and was running some rundown hotel on the strip in Banff.
Life in the mountains.
Tags: david lund,
hospitality financial leadership,
hotel financial coach
David Lund is The Hotel Financial Coach, an international hospitality financial leadership pioneer. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with Fairmont Hotels for over 30 years.
He authored an award-winning workshop on Hospitality Financial Leadership and has delivered it to hundreds of hotel managers and leaders. David coach’s hospitality executives and delivers his Financial Leadership Workshops throughout the world, helping hotels, owners and brands increase profits and build financially engaged leadership teams.
David speaks at hospitality company meetings, associations and he has had several financial leadership articles published in hotel trade magazines and he is the author of two books on Hospitality Financial Leadership. David is a Certified Hotel Accounting Executive through HFTP and a Certified Professional Coach with CTI.
Contact: David Lund
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