The most unfortunate part of being a restaurant owner is dealing with employee theft. According to the US Chamber of Commerce, an estimated 75% of employees steal from their employers and make a habit of it.
Training and other corrective actions can be taken to minimize employee theft, like creating a loss prevention (LP) plan. The foundation of a restaurant LP strategy rests on two pillars: integrated restaurant POS technology and advanced data reporting. When combined, you have an effective method of identifying high-risk behaviors and suspicious patterns.
Restaurants, as well as other businesses (both online and physical), struggle with fraud every day. Luckily, there are several ways to prevent fraudulent activities.
Designing a restaurant and bar loss-prevention strategy is critical to managing a profitable business, regardless of your size or level of success. Whether your restaurant is brand new or an established chain, the smart business owner devises an LP plan. It’s too risky to ignore preventable measures of profit loss.
Sadly, most of the loss prevention needed in restaurants focuses on employees, but creating a plan that reports all moves made by employees helps to keep employees from scamming in the first place. Knowing that you are being tracked helps to keep people honest. Integrate a reporting system and let your employees know they are being tracked, but do not give them the particulars of every report, as this will give them access to skirt around the system and find new ways to scam the restaurant’s bottom line out of more money. An integrated reporting system helps you keep track of your funds and spot scams right out of the gate.
Learn more about specific types of Loss Prevention scams you can prevent here.
A Loss Prevention strategy for the modern restaurant owner requires two practices:
- Reporting and analyzing
- Actions are taken based on reports to prevent loss
The technological capability to organize data, like a POS, which allows you to identify the sources of profit loss.
Create a comprehensive Loss Prevention plan that involves analysis, maintenance, and communication.
At the core of your loss-prevention strategy is automated data analysis. This frees up your time, removes human error, and allows you to redistribute resources more effectively.
With an LP strategy in place, you can identify the most common scams and use your POS to set alerts. For example, if you were to detect a transfer scam.
What is a transfer scam?
A transfer scam is when a server opens a check and then transfers order items from cash checks to an open check throughout his or her shift. When he or she is ready to close out, a promotional code or coupon is applied towards the open check. There are quite a few variations of transfer scams, but with the right parameters in place, almost all of them can be spotted and stopped in their tracks.
To eliminate a transfer scam the fast way, set a transfer limit, like allowing just three transfers a shift per employee. This means you won’t have to review video footage or check data manually. To set the right limit, take old data to identify what would be an unusual number of transfers, and decide on an acceptable transfer limit. With the alert system, you will know immediately if any unusual or suspicious employee activity takes place after.
You can always adjust to a more tolerant threshold later. If you have to take management away from other projects or managerial duties to deal with threshold limits, it is time to make adjustments based on this information.
Typical Employee Fraud Schemes Found in Restaurants
Look out for these other common types of restaurant and bar fraud scams. Using data analysis and your POS, you target scams and prevent them.
Wagon Wheel Scam
A wagon wheel scam is pulled off when a server transfers an item that has already been paid for to another table, without accounting for the payment when a customer pays in cash and then pocketing that money. With the proper use of security enablements on your POS system, you can require a password to transfer menu items from one table to another. While this feature can be useful at times, it is rare that a server will need to transfer items from table to table, and a manager can help them bypass the password enablement section in the rare event that they need to do so.
The wagon wheel scam is more popular than one might think. To monitor if any fraudulent activity is going on at your restaurant by way of a wagon wheel, review same-item transfers in cash transactions by employees. You can also monitor the overall transfer activity to identify spikes.
Analyze the same item transfers in cash transactions by employees, or monitor overall transfer activity by employees to see if anyone is above average. Use these reports to decide if you need to enable password protection for the transfer of items, or set a limit to how many transfers per shift a server can do.
Auto Gratuity Scam
What happens with an auto gratuity scam?
A visitor at a restaurant orders a frosted tea at the bar. There is an automatic gratuity added to the check, per the policy of the establishment. She drinks the refreshment, signs the check to her card, and leaves. The bartender goes into the POS framework and adds an extra $1 tip to the check before shutting it to her card charge account.
This type of scam is seen more often in resorts and vacation towns, as the totals are typically charged to a room, and it is harder for a customer to track a few extra dollars here and there missing each time they go to the bar, or order room service, or have their laundry done for them. Luckily, it is harder to get away with in a restaurant, but servers and bartenders are still caught trying to pull off an auto-gratuity scam more often than you might think.
Look for employees with above-average check counts that have auto-gratuities. You can also check for high total-tip-to-sale percentages to detect auto gratuity scams. Don’t jump to conclusions here though, often your best servers will get higher tips than average employees, and the last thing you want to do is punish good behavior, or make accusations and lose your best workers.
Employee/Manager Meal Abuse
This is a partnership scam run by an employee and manager. To identify meal abuse, look at the employee’s manager meal-to-shift percentage. Compare the numbers with other managers to identify unusual activity.
Set a limit to how many discounted items or a dollar amount of free meals to be comped per employee per shift. If you suspect abuse, you have the option to suspend the privilege of comped and discounted meals for employees or managers.
Free Meal Abuse
You may see employees abusing their discount or free meal policy outside of help from management. Studies have shown that over 40% of all food service employees eat for free at their employer or abuse the system for meal discounts, no matter what policies are set in place by management. Some examples you may see include the following.
- Discounts applied to friends and family meals when it is against the policy
- Making and eating their own food in the kitchen
- Applying their discount to a ticket and then pocketing the difference (another type of tip-boosting scheme)
- Giving parts of their free meals away to customers then charging the customer
- Giving free meals away to friends and family.
Learn more about preventing meal theft and meal theft studies here.
Shell Game Scam (Voids/Discounts/Cancels)
The shell-game scam is easy to identify: Set daily alerts on cashier voids, discounts, and cancellations, and focus on a variation in metrics. If you see a higher-than-usual threshold, you most likely detected suspicious behavior.
Shell game scams get their names from the street game where shells (or sometimes cups) are shifted around, and the player has to pick which shell has an item underneath it. When these are played illegitimately, the game master will remove the item from the table completely without being spotted and be able to scam the players out of the money they bet on the game.
The concept of shifting items around until they are lost track of applies to restaurant scams when servers cancel items, move items to different tables, and void orders. This will often be done after the server receives payment in cash and pockets the difference of the scammed off items.
Tip Boosting Scam
A server might boost gratuity a few dollars every time—to locate a tip-boosting scam, identify the average tip percentage by the server and look for strange variances. One way to hone in on issues is to compare the tips of checks with and without voided items.
If the amount of tips a server receives is higher on checks that items canceled or voided, you can spot a tip boosting scam right off of the bat. Monitoring this type of activity is made easy with Lavu’s POS integrated reporting available for restaurant management.
Shift Your Cash Handling Procedures and Track Performance
How is cash handled at your restaurant? Taking cash is the easiest way to steal from a restaurant, again and again, so refine the cash-handling procedures at your restaurant and bar. Clearly defined procedures will reduce employee theft or error.
When your money handling care plan is set up, you ought to compose a dashboard of money the executive’s reports that feature money over/short for the day by employee, manager, and kiosk used that features those who surpass the setup parameters. Furthermore, a money file report that incorporates voids, discounts, limits, and some other metrics that could be a marker of how a money lack (or excess) happened will enable you to measure where issues are usually happening.
Additionally, they help you to keep track of cash and to know when something is amiss. Implement these strategies to handle cash:
Organize the drop boxes to be close to the register. Throughout the day, make a cash drop to limit the dollar amount of funds available at the register. Assign a manager to take the cash drops out of the dropbox and take them either to the bank or to a safe.
Encourage honesty among your employees and implement an accountability program.
Limit the number of employees who handle cash, entrusting specific supervisors and managers only.
Assign different cash-management duties to create a system of checks and balances, such as one for collecting cash and one for recording receipts.
Be strict in your rules and when pointing out discrepancies. Maintaining a loss prevention strategy requires gravity and diligence.
Start protecting your restaurant from scams by upgrading your POS system today.