Fraud In The Food Industry
Recently the Fair Work Ombudsman (FWO) has launched a number of investigations into fraud and corruption in the food and hospitality industry. These investigations have focussed on ensuring businesses comply with labour laws and employee rights, including applicable awards and working conditions.
Restaurant and café owners are often at greater risk of fraud and collusion due to the high prevalence of outsourced labour, as businesses can be liable for the practices of related entities, including franchisees, subcontractors or suppliers. It is important for businesses in this sector to understand that they may be liable for the unlawful practices of such related entities.
While fraud is an unfortunate occurrence, there are a number of areas business owners can address to lower the risk of fraud in their organisation.
Businesses in the food and hospitality industry need to ensure they comply with relevant industry awards or enterprise bargaining agreements in the payment of employees. Failing to comply with the appropriate award rate could be construed as wage fraud.
The FWO requires employers to keep records of time and wages for 7 years. Keeping accurate records allows businesses to identify any errors and helps avoid fines for fraudulent activities. Businesses that identify errors in payment and seek to rectify these errors early are less likely to be perceived as conducting wage fraud.
Subcontracting arrangements put organisations at a greater risk of fraud, particularly if contractors are allowed to engage subcontractors without the approval of the business. There is also a risk that subcontractors may seek to avoid fraud controls put in place by the business.
Businesses need to be vigilant with subcontracting arrangements to ensure the subcontractor has a good reputation of complying with fair work laws and awards.
Incidents of fraud can have a substantial damaging to effect to a business, not only in terms of financial penalties and associated costs of remediation, but also in terms of damage to the reputation of the business.
As such it is crucial for business owners to put practices in place to prevent and identify fraudulent activity within their organisation. This could involve conducting careful due diligence on any subcontracting arrangements, ensuring staff and contractors are aware of their compliance obligations through training, regularly assessing the risk of fraud within your organisation and reviewing your business processes for any errors or areas for improvement.
If you wish to obtain greater comfort over your hospitality business, or strengthen your internal controls in general, please contact your relevant ESV Engagement Partner on 9283 1666 to arrange a consultation.
Article by Colin Samuel