How HR Technology Can Help Prevent Your Event From Fraud

By Shannon Walker

When an event is not properly equipped with the right security enhancements, it can easily fall victim to cases of fraud, theft, and asset misallocation. One of the most well-known cases of event fraud from the last few years was the now-infamous “Fyre Festival”. Fyre Festival was an event that took place in early 2017 - it was to be a huge music festival featuring celebrities, tropical accommodations, incredible food, and more. However, it did not pan out in the way most event-goers expected, with the entire festival being terribly planned and executed, from start to finish. After the event, it was also revealed that the organizer had scammed investors out of $26 million dollars, which was the root of many event issues to begin with. This event had huge potential to be a great experience for everyone involved, but fell victim to a now-infamous case of fraud.

All types of large events, including charity, fundraising, networking and festivals, are seen as profitable targets for fraudsters. Each of these occasions sees large sums of money flowing into the financial department of the event organizer. Many event organizations rely on different teams working together to raise funds, which significantly increases the access points for cash inflow to the organization or event. While safeguards such as increased security can help protect events in the external front, proper internal safeguards are also needed to prevent occupational fraud when it comes to large-scale events. Employing the right technology before, during, and after all event operations will help minimize risk and ensure safety for everyone involved.

What is Event Fraud?

Fraud is a broad term that is often associated with wrongdoing by someone for financial gain. When applied circumstantially, it can take on many different forms but is generally differentiated as being either external or internal fraud relative to companies, organizations and other financially lucrative entities. So, when we’re discussing event fraud, we examine how different stakeholders may potentially defraud the organizing body of the event, causing a financial loss for the organization.

What is Occupational Fraud?

Sometimes referred to as employee or workplace fraud, occupational fraud is any form of asset misappropriation, corruption or financial statement fraud that occurs internally in an organization. The larger the organization, usually the more significant the risk of fraud. However, even smaller organizations or events can be targeted without the proper screening and reporting processes in place. Understanding these different types of fraud will help set the stage to delve into the nuances of how to prevent it at your upcoming event.

Asset Misappropriation

The first and most common type of occupational fraud is when an employee uses their position (can be any level, not just influential executives) to steal money or other valuable assets for their own gain. Asset misappropriation is often used as an umbrella term to describe many different fraud cases, as the different tactics are often used simultaneously. Smaller organizations may see petty cash theft, cheque tampering, and abuse of credit cards. In larger organizations, including events, we can often see falsified expense reports or purchase orders made out to fake vendors or misuse of equipment that ultimately cost the company.

Corruption

Corruption commonly occurs in more complex fraud cases where the perpetrator targets various key decision-making processes to subvert the result in their favour. This tactic is used to misappropriate assets or create fraudulent financial statements and often targets individuals or vendors outside the immediate organization. In the cases of large events, those who work with various vendors through different departments, right down to the personnel working on the event floor, can make corrupt decisions. Here, bribery, false payments and collusion with vendors to subvert or substitute products are common corruption tactics by individuals. A small-scale example of this may be someone working on the event floor accepting bribes to let in unauthorized attendees. Whereas a large auction event may have issues with missing products or not being delivered as promised due to a corrupt individual.

Financial Statement Fraud

In financial statement fraud cases, you usually deal with an individual or team who works directly in or with your organization’s finance department. Your organization may be small enough that your entire financial team is only one person. These cases are complex as the fraudster is usually savvy enough to know which sheets, income statements or cash flow statements to falsify to deceive those who read them. Usually, financial statement fraud cases will fall into two categories. The first is considered a mix of asset misappropriation and corruption when the perpetrator falsifies documents for their own personal gain, and the second is when a key decision-maker falsifies the documents to deceive stakeholders specifically to keep the business afloat. Charity events are particularly susceptible here as sums of money often come into the organization through multiple streams.

As explored, occupational fraud is a complex issue, and cases will vary between organizations and events. Knowing how vulnerable you are, beyond just securing your finance department, will be crucial for setting up your fraud prevention plan.

Understanding Your Weak Points

External Liabilities

While occupational fraud focuses on the internal workings of your organization, as uncovered through the nuances of corruption, third parties can also play a role. Whether it be event suppliers or individuals attending, you must be aware of points where external influence can lead to fraudulent activity.

The first potential vulnerability could be through payment methods. If you are running an event that requires prepayment or uses an online donation system, you must ensure the system’s security. For attendee’s sake, you want to use secure payment methods and encryption technology to uphold data privacy. Whether running your own site or using a third party, ensure there is an SSL script. On the back end, ensure employees have limited access to funds. Going cashless is often the most secure during the event to help streamline all finances and keep physical money off the event floor. If you do accept cash, regularly remove it from the tills around the event to a location only accessible by authorized individuals.

Another external weakness for events is ticket fraud, especially for smaller-scale events with less top-down control over how tickets are disrupted. This vulnerability may be both external and internal, as people may target employees to help them create fake tickets to access the event, and a corrupt individual may comply. If you have a large team of employees selling tickets through multiple streams, it can be harder to control.

Internal Liabilities

Unfortunately, your most significant internal liability for fraud is likely your employees. People have many reasons for committing fraud, and those with the right motivations can target lucrative events and see working for them as an opportunity to leverage their goals. As discussed, corruption and coercion can be toxic viruses that lead to a significant loss for your organization. However, fortunately, with the proper training, security measures and enough people on your team doing the right thing, these individuals can be weeded out.

If you run an event requiring many volunteers, vetting the right people for highstakes jobs can be more challenging. Often, budgets won’t allow for event management to take on more paid employees, and it can be harder to find willing volunteers. In other cases, having too many volunteers can make your organization more vulnerable. In any case, having the right checks and balances by positioning people strategically in roles can help keep essential activities or actions by employees from flying off your radar.

Implementing HR Technology

Accounting Software

Whether your finance team is big or small, accounting software can help to safeguard and streamline your financial documents. Using a software service for this will be more accessible for events that have operations in various locations. There is tailored software for nonprofit organizations that need to precisely keep track of donors, volunteers, grants and fundraising, separate from employee payroll and overall event budget. The primary bookkeeping and auditing services can also help you better track cash inflows and outflows and monitor any suspicious activity.

Employee Records

Ensuring you have comprehensive employee records that include background checks can help reduce the risk of internal fraud. You should get to know your prospective employees during the vetting process. However, keeping hard records such as full names, security numbers, emergency contacts, and banking information all in one secure place can help you quickly look up employees when needed. Additionally, for events that need added security, you can use this information to implement employee access cards to enter certain authorized areas, helping you better track who is going where and when.

Reporting Hotlines

One of the best methods for internally securing your event operations is by giving your employees an outlet to report any suspicious activity without fear or reparation. Running an event has even more moving pieces than your average organization, so having employees who hold each other accountable is necessary for exposing illicit behaviour.

Traditionally, tip hotlines have used the most basic toll-calling technology to have employees report to an internal administrator. However, these pose issues to the integrity of the hotline, as there is a conflict with anonymity when a member of the organization is receiving and auditing complaints, which can disincentivize employees from reporting. Fortunately, technology has since advanced and encrypted third-party systems and software can manage all hotline processes to ensure the utmost security and safety of the reporter. Additionally, other reporting modes can be implemented, such as a web-intake form, which increases accessibility for those uncomfortable reporting complaints over the phone.

In the past, negative connotations have existed around those who report internal wrongdoing against their workplace, even in cases as severe as fraud. It is essential, when the stakes are as high as they are at large events that these whistleblowers are supported. Any reporting tool implemented should be entirely anonymous and followed by a comprehensive anti-retaliation policy that cracks down on anyone who retaliates against a peer for speaking up. Additionally, executives and others working in positions of power for the event should show their outward support to those who have the courage to speak up. Implementing these measures helps to encourage a speak-up culture, which is necessary for the success of internal reporting tools and the success of your event.

Educating Staff

Ensuring that all staff present at the event and working behind the scenes are educated on their roles and how to ensure the security of people and finances at the event will be essential for smooth operations. Once you have effectively vetted trustworthy employees for your event, be sure to properly educate them on the various technologies and procedures put in place to help protect the event from financial fraud. Hold training sessions before the event to ensure everyone is comfortable using the technology and asking questions when needed.

When delegating roles, ensure employees have responsibilities to oversee each other’s work, which will help to provide checks and balances. For example, avoid leaving one person in charge of all financial transactions, auditing, or payroll without any oversight.

Have employees review the anti-retaliation policy and understand how and when they should speak up. Knowing how and when it is appropriate to use a reporting tool will help encourage employees to feel comfortable when they need to do so. Additionally, making known the signs of suspicious activity will help make your organization more aware as a whole and better prepared to make a report.

Knowing the Signs

With all the different types of fraud, your organization remains vulnerable at many points. Knowing the signs in individual behaviour can go a long way in preventing occupational fraud committed by employees or volunteers involved in your event.

Check in with employees regularly. Those who are unforthcoming with vital information affecting the event, avoidant of straightforward questions, and quick to shift blame may be deemed suspicious. You should pay equal attention to those in customer and vendor-facing positions who work directly with financial records, as both can commit different types of fraud.

Conclusion

With the prevalence of occupational fraud affecting all industries, it is imperative to understand how your event organization may be vulnerable. With robust internal mechanisms supported by up-to-date technology and policies, you are better suited to safeguard your organization’s finances. Ensure all employees and volunteers are adequately trained and comfortable speaking up against wrongdoing. Know the signs and protect those who speak up with integrity to protect the organization. With all these safeguards in place, you can hopefully step out on the day of your event with the comfort of knowing you are well-protected, and can have a safe and enjoyable event for everyone involved, without becoming the next “Fyre Festival”.

Shannon Walker founded and is President of WhistleBlower Security Inc. (WBS), an ethics reporting and case management provider. She has a Masters in Communications (Public Relations) from Pepperdine University and B.A. (Communications) from Simon Fraser University.