Restaurant owners have enough on their plates without adding fraud monitoring and theft prevention to their daily operations. Unfortunately, fraud and theft are alarmingly common in hospitality, accounting for a huge chunk of lost profit.
With high staff turnover, cash payments, and tons of consumable products, a fast-paced restaurant or bar is the ideal setting for scammers and thieves to go unnoticed.
To help you catch restaurant fraud and theft like a pro, we’re sharing seven quick and easy tips to stop these transgressions before they spiral out of control.
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What is restaurant fraud?
Restaurant fraud occurs when someone intentionally deceives or misrepresents information to gain something at the expense and harm of your restaurant.
There are two primary types of restaurant fraud:
- External fraud is committed by customers, vendors, suppliers, and anyone else who isn’t your employee.
- Internal fraud is committed by your employees. Restaurant turnover rates have recently climbed over 50%, creating a constant demand for labor. But vetting the trustworthiness of new hires may be more rushed as a result.
Fraudulent activities may range from vendor fraud to employees stealing your personal information to commit credit card scams or identity theft.
With the latter, a disgruntled employee may tap into your accounting screen to swipe sensitive information they can use to open new lines of credit in your name. And you wouldn’t even know until debt collectors started demanding payments.
What is restaurant theft?
Restaurant theft occurs when someone intentionally steals from your restaurant. These activities can range from employees stealing food inventory or undercharging friends to swiping proprietary recipes or pocketing cash payments.
According to statistics:
- 95% of businesses encounter problems with employee theft.
- 75% of employees say they’ve stolen from their employers at least once.
- More than half (55%) of all embezzlement cases occur at small businesses with fewer than 100 employees.
- Internal employee theft accounts for 75% of restaurant inventory losses and 4% of restaurant sales.
- Employee theft in the restaurant industry costs businesses $3 to $6 billion annually.
Now that you understand what you’re up against, let’s talk about:
7 best practices to catch fraud & theft in your restaurants
To stop the potential for fraud and theft at your restaurant, always:
- Synchronize your inventory and financial reports
- Analyze void and comp reports
- Watch average tab times
- Verify potential thefts with recorded security footage
- Implement blind closeouts
- Check employee reports for time theft
- Sign up for credit monitoring and identity theft alerts
1. Synchronize your inventory and financial reports
Get in the habit of proactive monitoring. Restaurant inventory management systems that integrate with your POS and accounting software quickly highlight discrepancies and inconsistencies.
A fully-integrated restaurant platform should provide:
- Product reports, so you can see your top-selling products, orders, current stock, and all the information related to costs and taxes.
- End-of-day reports and user reports. Scan an overview of your sales and your cash drawer activity. Check every transaction your staff processes and a list of receipts per user with tip information.
- Accounting numbers. Don’t spend hours doing all the calculations yourself; get your restaurant accounting numbers automatically posted each day and view them for irregularities.
- Cash drawers recap. Track all related activity and see a detailed breakdown of all the transactions.
Employees feel empowered to steal when they believe no one’s watching or cares. Performing these daily audits shows them you’re watching and invested, which adds a layer of accountability to their actions.
Having a clear overview of this intel will help you catch employees:
- Eating or drinking without paying
- Giving out free food or over-pouring drinks (to earn higher tips)
- Taking food home after shifts
- Undercharging (i.e., ringing a less expensive item into the POS and keeping the difference when a customer pays for the more expensive one)
- Failing to report food waste
- Performing too many voids or comps
To prevent employee food theft, provide a staff meal and break-room snacks. Then ensure your back-of-house doesn’t allow employees to graze on shift.
2. Analyze void and comp reports
When customers pay cash for their bills, employees may fraudulently void the entire order or items from the order in your POS and keep the money. Wrongful voids are easy to track in your POS and compare with your inventory.
So check your void reports daily to see which employees have higher void rates than others. You’ll also want to monitor your shift managers, as many restaurants require a manager to sign off on voided tabs.
Comps can be more challenging to spot. If customers are unhappy with their orders or the server keyed the wrong items into the POS, it’s good customer service to eat the charges. However, an abnormally high amount of comps per server could signal a problem employee.
3. Watch average tab times
In a scam known as “the wagon wheel,” employees move orders in the POS from one check to another and pocket the cash after the customer pays.
Let’s say a customer orders your famous lunch special, pays cash, and leaves. Rather than voiding the entire order, which would raise suspicion, the server moves the order to a new “ghost check” and keeps the customer’s money. Assuming there will be more lunch special orders, the server can keep the wheel churning for the rest of their shift.
To detect this scam, watch how long tabs are kept open, on average. Check server-specific tab averages too. Anything that’s more than a few hours old should be considered suspicious.
4. Verify potential thefts with recorded security footage
Automated video surveillance tools are necessary for recording robberies and burglaries. But they can also catch employees failing to key cash orders into your POS, voiding checks, and stealing inventory. They’re even helpful for times when servers claim customers walked out without paying their bills (aka, the dine-and-dash).
That’s why you should not only set up automated security cams in your restaurant, but get in the habit of checking them routinely.
According to one study, technology-based employee monitoring installed in ~400 restaurants helped:
- Reduce employee theft by 22%
- Increase total check revenue by 7%
- Raise total drink revenue by 10.5%
Upgrade your camera with tools that record activity and leverage artificial intelligence (AI) to alert you to suspicious behavior. This perk saves hours of video scrub time by directing you to the exact timestamps to analyze.
5. Implement blind closeouts
A blind closeout is a money-counting protocol that requires employees to reconcile cash at the end of their shifts without knowing how much they’re expected to total.
If employees are artificially inflating or deflating sales and pocketing the difference, skimming cash from the register, voiding checks, etc., it’s nearly impossible for them to remember the final total they should have at the end of their shift.
Blind closeouts help you catch employees whose expected and actual totals don’t match up. Then it’s up to them to explain why.
6. Check employee reports for time theft
Time theft occurs when an employee is unproductive during work hours or not physically at work when they’re clocked in.
Time theft takes many forms, such as employees taking longer or unscheduled breaks, clocking in early or later than their shifts, or using their phones on the floor when they should be working. “Buddy punching,” asking another employee to punch in for you, is also common in restaurants.
Nearly half of employees (49%) admit to time theft. And while lax managers and owners may forgive small cases of time theft, statistics show these stolen hours add up:
- Accountants say 92% of their clients have a problem with time theft — adding 5%, on average, to their gross payroll costs.
- 20% of every dollar earned is lost to employee time theft, costing US employers $11 billion annually.
- Buddy punching costs US employers $373 million a year.
To catch time theft, check your end-of-day employee reports. Your fully-integrated restaurant platform should offer a complete overview of each employee’s day, from hours worked to sales, to gauge their productivity. Compare averages across employees and then against your surveillance footage to spot potential time stealers.
To prevent time theft:
- Use restaurant scheduling software to create efficient employee schedules and incorporate appropriate breaks during off-peak times.
- Enforce strict clock-in and out protocols to better understand actual work hours in your system.
- Create a phone policy in your Restaurant Employee Handbook to let staff know when and where they can use their phones during their shifts. Ideally, the only phone your employees should use in a restaurant is your business phone system.
Catching time theft and preventing it in the future boosts profits and lowers your payroll expenses. Even better? It also raises employee morale. Your team knows who’s not pulling their weight despite receiving the same pay as those who work twice as hard.
7. Sign up for credit monitoring and identity theft alerts
Connecting your POS, inventory management, and accounting software makes your life easier. But it also presents opportunities for unscrupulous employees to access and steal sensitive financial information.
Rogue employees may know how to access your accounting screens to copy credit card numbers and bank account details. But it’s almost a guarantee that your managers access this information daily. And unfortunately, 85% of embezzlement cases were perpetrated by an employee at the managerial level or above.
The most popular types of restaurant fraud happen when employees:
- Steal credit card numbers to make small fraudulent purchases that go unnoticed yet add up when made frequently.
- Create phony vendor bills and pay themselves from your business account for products or services never rendered. A vendor payout for “new barware” may not raise red flags when you’re busy. But over time, these unaccounted-for expenses chip away at your bottom line.
- Engage in check tampering. Employees can alter payer information in your system so that money will be deposited into their account rather than paid to a vendor.
- Sell stolen personal information on the Dark Web. Credit card numbers, bank account details, employee social security numbers, and more can all be sold for hundreds of dollars on the Dark Web. Then cybercriminals can use this intel to exploit you and your staff.
- Commit identity theft. Employees can find everything they need to open a new credit card account or take out a loan in your name in your system. They can get away with this for months before debt collectors come calling or they suddenly quit.
The more assets you have, the more you become a target for identity thieves. That’s why signing up for a credit monitoring service is the easiest way to automatically detect near real-time:
- Changes to your credit reports or credit limits
- Fraudsters applying for credit in your name
- Fluctuations in your credit scores
- Hard inquiries from lenders that you didn’t request
- Unauthorized loans or credit card applications made in your name
The best identity theft protection should also provide $1 million in identity theft insurance to cover all the expenses associated with restoring your identity after it’s been stolen, such as the cost of legal fees, certified public accountants, replacing identification documents, and more.
To reduce security risks at your restaurant:
- Customize employee profiles, permissions, and access. Only let each employee see what they need in your system. Restrict access to sensitive information and manage third-party access to your payroll, invoicing, sales data, etc. Make editing payment information password-protected so you’re the only one who can change these.
- Use software with remote access to keep an eye on your establishment remotely and encrypt your emails You’ll always know what’s going on even when you’re away and employees may be more prone to hack into your systems.
Remember, it’s not just your personal information at risk, but your employees’ and customers’. Create a culture of data security, and you’ll scare away scammers looking for an easy target to compromise. Implementing these best practices is crucial for maintaining the integrity of your restaurant operations and enhancing your operational risk management process.
How can tech help you catch restaurant fraud & theft?
All the solutions we shared today to proactively catch restaurant fraud and theft happen much faster and easier with the right tech on your side. Restaurant management software helps detect inventory and POS discrepancies, employee time theft, and more, so you can focus on running your business.
With rising inflation trends in the hospitality industry and slimmer profit margins, you can’t afford to put off fraud prevention or look the other way on employee theft. Catching these transgressions ASAP may mean the difference between keeping your doors open for business and closing up your dream eatery for good.
Looking for a technology partner to help manage inventory, staff, operations, and more? Chat with one of our experts to learn how Lightspeed can help.