Fraud in Your Spa/Salon
By Skip Williams
Attention Spa / Salon Owners: Someone reading this article may
learn new ways of theft. We are not responsible for any losses that
may be incurred. If you are an Owner it is now more important that
you read this column and take appropriate action and let others
read this at your own risk.
about a subject such as Fraud or Theft often makes me sound like
I am mistrustful of people, for the record I am NOT. I truly believe
that most people are trustworthy, loyal, honest and hard
working most of the time. There can from time to time be
a bad apple in the bunch that can cause an incredible amount of
havoc for both Spa/Salon Owner and fellow Employees. It is to those
"bad apples" that I dedicate this article in the hope
that a business properly safeguarded will keep you honest or spur
you to move to our competitions business.
many industries "Fraud" can never be eliminated, it can
only be "Minimized"; our industry is no different. The
opportunity to steal is ever present. Sometimes theft is not even
thought of as theft by the employee.
would agree that if someone trusted with the "cash drawer"
takes cash out and puts it in their pocket, that is fraud or theft.
From there however we are dealing with shades of gray, some shades
are darker than others some are so light that different Owners may
define them differently.
I need a pen or a manila folder and take it home is that theft?
If a Provider takes some "back bar" materials home for
their own use is that theft? What if he/she takes it home to work
on Clients of their own? If a Manager abuses their "Entertainment
Budget" is that theft? How fraudulent is it when a Provider
offers their services to a client outside the Spa/Salon? Is it different
if it was unsolicited, the Client asked the Provider? Use or over
use of the telephone? Encouraging clients to use, or providing Clients
with, coupons or special offers?
many Owners that would contend that all or most of those "shades
of gray" are fraudulent practices or outright theft, however
Employees often may not. Many Owners may not be aware that these
opportunities and many others are tempting their staff daily.
first line of defense is to clearly establish the boundaries, darken
up those shades of gray that most worry you. Write clear policies
that outline what is NOT tolerated, what the appropriate
disciplinary action is, and whose responsibility
it is to seek out these "frauds".
example: Thousands of dollars are walking out the door of many
a Spa/Salon in the form of Clients business that is now being
done at the home of one of their Providers. Different levels
of "solicitation" are taking place. Some are outright
asking Clients that come to the facility regularly, some hint
at the fact that they treat Clients outside the Spa/Salon through
the course of a normal conversation, and some are doing no solicitation
but are asked by Clients if they work outside the facility.
do you draw the line, what is your policy, how do you enforce that
policy, and who is on the lookout to make sure this does not happen?
I find all too often, Managers ignore that this form of fraud happens,
and just hopes and prays that the Owner does not find out and that
the Providers do not get carried away.
an Owner the saddest part is that it is often the Best Providers
taking the Best Clients home with them. Policies are critically
important for dozens of reasons but for fraud in particular.
level of "Checks and Balances" is directly proportional
to the level of involvement by the Owner. If the Owner is at the
front desk all day, everyday, then the checks and balances necessary
for cash drawer accounting are significantly less than that of "the
us review a few areas where C&B’s are necessary, I will talk
to the highest level of C&B, the absentee Owner, those Owners
that are more involved can take from these more extreme measures
what they need. I will also talk as though I was the dishonest employee
whose goal in life is to "rip you off", even though in
real life I am a really honest sweet guy… really… honest!
never! When a Client receives services for a "coupon special"
but does not present a coupon, I can take a coupon out of my pocket
and put the cash difference in my pocket.
only do you think that all your customers are now happy, you think
"what a successful marketing campaign". You now have less
money in your pocket and bad marketing information; I am not sure
which is worse.
Have a Sale, lower the programmed price at the cash register,
if you want to have a special go ahead and advertise it, go
ahead and give the great price to everyone, just make sure it
is programmed into your cash register or price menu. Then the
money (savings) is getting into the hands you intended, and
now your customers really do love you.
Certificates, be careful! If gift certificates are not done
with serial numbers, logs, and an ironclad way of making sure your
system can NEVER take the same certificate twice then forget it.
If you want to offer gift certificates you will need copious control
in the "Closing Review & Reconciliation" (see next
item) and still you may not have closed the door.
your employee, I am short on cash this week, I buy a gift certificate
with my employee discount (let us say $100 certificate for $80).
I use it to pay for a Clients service; I take his/her $100 put it
in my pocket, net profit to me $20.
Employee discounts for gift certificates may be extreme; this
is a very nice benefit to your honest employees that you are taking
away because of one bad apple.
for gift certificates with close or same dates between purchase
and redemption, which requires more vigilance.
all Employees discounted sales first are approved by the Manager.
Review & Reconciliation, always! Careful closing review
is imperative, on a daily basis the previous day’s receipts need
to be reconciled by two levels. The further time that elapses between
closing and review allows memories to get foggy, and makes corrective
I am Mr. Dishonest, reporting wrong deposit amounts, double redeemed
gift certificates, paying out credit card refunds that you know
nothing about. Without those C&B’s I am going to be doing this
the Manager must look for anomalies, verifying for all the treatments
that a Provider reports (you do have Provider reports, right?) they
have done, are indeed entered into the front desk system. Managers
can learn a lot of other important information besides bookkeeping
from this exercise, you may be surprised. All comps must be fully
understood and dealt with (see below), tips accounted for and split
according to your Spa/Salon policy and gift certificates sold and
redeemed reviewed. If a Manager lets a faulty closing go through
it is now their responsibility and this is where the corrective
action needs to take place first.
your Controller or Bookkeeper must review & reconcile, he/she
must tie cash drawer, deposits, credit card "Z" tapes,
gift certificates, discounts, comps, and then do this again when
the bank statement arrives to be sure you deposit slips etc. were
indeed what they were suppose to be. It is very important that the
loyalty of this person is to the Owner. Important that he/she feels
comfortable coming to the Owner when anomalies arise and a confidential
relationship develop. Likewise if the Controller lets discrepancies
slide they should be called on the carpet.
touched it last and passed it should be the person dealt with, never
accept the answer that someone else made the mistake, missing a
mistake is more egregious than making the mistake.
makes the deposits! I am a front desk closing person, I have
been instructed to make the "night deposit". It is around
the first of the month, I do not like my job, and I plan on leaving
your employment soon. I short the deposit bag by a few hundred everyday,
but I make a deposit slip copy (the yellow one) for the correct
amount and leave it with the closing report. A few days before the
end of the month I quit, you pay for a nice going away party for
me, and will not know for about 10 more days just how must I stole
the Owner to make the deposits but when that is not possible I recommend
that the Manager or Controller make the bank deposits. Caution,
a Manager or Controller could pull this same scam, but it is less
likely if this is their chosen professional career.
Detailed Comp Reports or Guest Incident Reports. For more than
just accounting reasons detailed comp reports should be required
before any comp or special discount is given. Indeed if a customer
was upset or concerned enough to say something to ANY employee,
even when not affecting receipts, a report should be made and Management
should review daily, and follow up. If not enough information was
given in the report the Manager should investigate, not in an accusing
way, but, in an information gathering way, so that the Client can
be contacted, corrective action be taken, or processes changed.
From an accounting point of view, the process of having to give
a detailed explanation, possible further actions or follow-ups being
made should be enough to keep comps legitimate.
with all the "Checks & Balances" in place, the opportunity
for fraud can still exist. The more C&B’s we have in place the
less temptation for our Employees and the more we show them how
little toleration we have for such theft. Still collusion between
two or more Employees can destroy even the best C&B systems;
there is no substitution for Vigilance.
replaces Owners involvement. The more time an Owner spends caring
about every transaction, every Client, every Employee, every treatment,
everything in his/her facility, the more tuned in they become, the
less chance for fraud, collusion, and theft. The more we care about
others well being, the more they will care about ours.
that while the direct loss of capital due to fraud can be significant,
but the collateral damage can be even more devastating. The loss
of customers, the corruption of the data and information you were
collecting, the disruption of the staff, rumor mills, the sense
of betrayal, legal matters, community reputation, etc. could each
take months to recover from.
I have consulted in this area I have found it enlightening to spend
at least 2 days doing nothing but observing the operation. Believe
me when you have nothing else to concentrate on for 16 plus hours
you can do a lot of fine tuning of your processes, and second-guessing
your Checks & Balances. This investment of time will pay for
itself many times over not only in the form of cash but also in
form of sleep at night. In order to curb the fraud we have to spend
some time thinking like that dishonest Employee long before any
Employee has the opportunity to think dishonestly.
that I have Owners completely paranoid, I must repeat that I believe
most Employees are honest and hardworking. Similar to the saying
"good fences makes good neighbors" I say, "tight
accounting makes honest Employees".
nature being what it is, under the right conditions, when confronted
with a temptation will sometimes (if not often) get the best of
any of us. Each time the fraud takes place it then becomes easier
for someone to fall prey the next time.
Owners we owe it to our Employees to:
if not eliminate the temptations
is an accounting flowchart that has worked well for me in the past,
I hope it is helpful to you.