Q: Over the past year or two, our agency has been the victim of a number of frauds. The perpetrators have come from every corner of the business: customers, independent contractors, employees, suppliers, and unknown persons who buy tickets. Can you give us a list of some of the best practices that you recommend to prevent frauds on travel agencies?
A: Here are the highlights of the list that I have developed based on the experiences of my travel agency clients over the years. I start with the most prevalent and high-cost fraudsters: independent contractors (ICs).
• ICs: First, obtain employment and retainer history before retaining a new IC. Second, get references, and if you cannot reach any of the past employers or hosts, give serious consideration to avoiding the IC.
Third, interview the prospective IC in person. Fourth, obtain a credit report and criminal history. Fifth, get a notarized signature on your IC agreement. Sixth, because anyone can fake a notarization, contact the notary to ensure that the signature isn't a forgery.
• Unknown persons: First, check your ticketing records right after every weekend to make sure no unauthorized person has accessed your system to issue tickets. Second, when you receive a confirmation email from Southwest, check it immediately to see whether someone has used your ARC number to make a phone reservation, as that carrier will try to hold you liable if you don't notify it within 24 hours after you receive the email.
• Customers: First, if you don't know the client, be sure to follow the credit card acceptance procedures in Section 8 of the ARC Handbook: Obtain an original, signed and imprinted credit card charge form, and compare the signature with the one on a photo ID. Even if you know the client, consider taking these steps anyway because they are the only airtight defense against credit card chargebacks.
Second, for corporate clients, obtain a signed contract under which the account agrees to reimburse you for debit memos caused by client employees, such as back-to-back ticketing and credit card chargebacks for allegedly unauthorized charges. Although corporate clients themselves rarely commit fraud on agencies, their employees and ex-employees can go rogue.
• Suppliers: First, if you have any doubt about the financial standing of a supplier or if the supplier is abroad, be sure to have the client pay by credit card, so that you avoid having the supplier keep the money while failing to perform the contracted service. If the supplier won't take credit cards, try to pay as close to departure as you possibly can.
Second, avoid suppliers that demonstrate a pattern of failing to pay commissions due or failing to pay until after you send several dunning letters. There is no doubt that such patterns are evidence of fraudulent practices.
• Employees: Perhaps the most upsetting (albeit least frequent, in my experience) frauds are those committed by long-time employees. Remove temptation from their paths by prohibiting collection of cash, requiring that client checks clear before releasing travel documents and prohibiting the same employees from both opening the mail and tracking commissions due.
Once you become aware of any kind of fraud, you need to take steps to protect yourself against further losses and recurrence of the problem.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].