Theft is an issue for any business, but in restaurants—where nearly everything is easily consumable—opportunities for employee theft is huge.
According to the research conducted by the National Restaurant Association, internal employee theft is responsible for 75 percent of inventory shortages and about 4 percent of restaurant sales.
Another study from the U.S. Chamber of Commerce concluded that 75% of all staff have stolen at least once, and most will likely steal again.
The cost associated with employee theft in the restaurant industry itself is estimated at $3 to $6 billion annually.
So, according to the data above, if you’re not proactively taking steps to protect your business from theft, it is like you are holding the door to your valuable assets open and unguarded.
Here are some of the most frequent types of theft that happen at restaurants.
Types of employee theft that could happen in your business
Undercharging customers and pocketing the difference is one of the common ways employees steal money from your business.
Here’s how it works: A customer orders a $12 beer, and your employee charges the customer $12. The problem is he enters $7 beer into the POS system. The customer is charged the appropriate amount, so they don’t know the difference.
And you wouldn’t realize there is an unbalance between the sales and the cash. Because when you compare the POS reports and the register notes, everything looks correct.
How to identify it
You can catch this type of theft by cross-checking the inventory in your POS system against the physical inventory in your restaurant.
You can also implement a blind closeout process. Have the employees to count the cash and report the total without knowing the exact amount they are expected to return.
If both of the methods reveal that the ideal and physical amount of money and inventory doesn’t match up, you might have a problem.
2. Stealing raw materials
Another common inventory scam is stealing raw materials, either from the storeroom or straight from the delivery truck.
When restaurant owners leave purchasing up to managers or chefs and don’t track expenditures on supplies, employees will have no fear of being caught stealing the stocks.
How to identify it
Monitor your expenditures on raw materials, drinks and dry goods and track the spending overtime. If there is a high variance of amount of materials used for the same amount of food produced, you might want to oversee the supplies purchasing process.
You should also keep an eye on the employee who’s changing their shift timings to when fewer people are around or working overtime way too frequently.
3. Voiding cash bills
There are a couple of ways for employees to steal cash from your sales, but voiding cash bills is one of the most frequently conducted.
Here’s how it happens: Your employee takes an order for a table that totals $100, and when the customer pays for the bill in cash, your employee voids the bill and takes $100 out of the register.
How to identify it
Just like the undercharging problem, the POS reports and the take from the register will match. Notice if there is a spike in the number of edited or void bills.
To determine whether a voided bill is real, cross-reference the items that are written on the bill with what’s in your stockroom.
If you suspect this scam happens in your restaurant, you have to keep an eye on your manager too because many restaurants require manager sign-offs to void a check.
4. Giving away too much comps and freebies
Your employee might not have done it with malicious intent. Still, if your employee is giving away too much free food, or they’re a little too lenient with the friends discount, it can negatively impact your bottom line.
The problem grows bigger if your employee intentionally builds a base of regulars who come in for freebies. In exchange for free food, these customers will overtip your employee in cash. This is a win-win situation for both parties, the diner gets a good deal and your employee gets more money. And there’s you and your business left harmed alone.
How to identify it
Perform random physical inventory check and regularly review comps in your POS system.
If the number of comps given away significantly increases and the inventory levels in your restaurant match those recorded in the POS system, there probably isn’t a scam happening, but there may be a management issue occurring.
Slow service from the kitchen, running out of inventory and poorly cooked dishes often make your employees need to compensate with free items just to keep the customers happy.
5. Faking a dine-and-dash
This type of theft is easy to pull off but difficult to prove. Both real and fake dine-and-dash will cause a discrepancy between the POS sales total and the cash.
Employees can fake a dine-and-dash by pocketing all the cash paid by the customer and claim that the customers dined and dashed.
How to identify it
Check the security cameras every time your staff claim there’s a customer who dined and dashed.
6. Using loyalty card excessively
This problem happens when a customer does not own a loyalty card, instead the employee uses their own loyalty card and pockets the benefits such as free food or discounts.
How to identify it
Scan your POS daily report to see how frequently loyalty cards are used.
7. Time theft
Wasted time and unscheduled breaks can damage your restaurant’s productivity and cause you high operational costs.
Time theft includes unscheduled brakes, doctored timesheet, lateness or leaving early and unnecessary phone breaks.
8. Disclosing intellectual property
Last, but not the least harmful is intellectual property theft. You don’t want to catch your competitor stealing your menu and making you run out of your business.
The restaurant industry is a lot smaller than you might think. You might see the same chefs and staff moving to or working in different restaurants. It’s hard to protect your secret recipes from becoming public, or even competitor knowledge if you don’t take this issue seriously.
How to prevent employee theft from happening
Employee theft at restaurants is a big problem, but there are always ways to prevent it from happening.
1. Pay your employees well and build open communication
Before you start accusing your employees of your loss and installing cams all over your restaurant, take a good look at the work environment you’ve created as an employer.
Thefts usually happen because an opportunity to do so has presented itself. You might think it’s mainly because lack of control over inventory and the consequences for theft are minimal.
But, feelings of being underpaid, under-appreciated and mistreated in work are also the main forces that cause employees to steal.
If you compensate them well, provide benefits that improve their quality of life and provide time for them to share their struggles, they’ll be less likely to end up taking what is supposedly yours.
2. Provide free staff meals
One solution to prevent your staff from stealing and snacking away your food inventories is to provide them a free, filling, and ideally healthy and delicious meal before their shift starts.
You can also provide some treats outside your inventory for your team to snack on.
3. Create policies & let your employees know it
Make it clear to your employees that employee theft is not an acceptable behavior. You also can explain how you approach employee theft and what kind of prevention measures you have in place, such as cameras and inventory checking.
This will let your employees know that you are aware of fraud schemes and that you are paying attention.
You can also set up policies and monitor their compliance to the rules.
- Use an app that makes your employees record their check in and out time.
- Set up comping policy, allocate a daily or weekly budget for complimentary items you can keep track with your sales goals.
- Set up a phone & break policy, but still acknowledge that your staff needs time to check in on social media or text for a ride home
- Let employees know loyalty cards are only for customer use and that it’s not acceptable for them to scan their own cards when employees make purchases.
4. Install security cameras in your restaurant
Having a security camera installed keeps your staff from stealing. It is a clear way of letting your staff know they are being monitored.
According to a study conducted by Washington University—observing the behavior of employees that were under electronic surveillance in 400 restaurants across America—surveillance reduced employee theft on average by 22% (equaling $24 per week saved). Three months after installing surveillance, theft was down even further, equaling $48 per week saved.
But before you start installing cameras in your business, make sure that any video surveillance is in line with the law and respects employees and customer privacy.
5. Limit access to cash drawers and the safe
Only the restaurant owner and manager should have access to the safe. In some instances, only the owner knows the combination to the safe. The fewer hands that touch the cash, the less chance of it being stolen.
6. Use POS and limit access to the safe
If you install an automated POS system, half of your checkout theft prevention can be considered done. A smart POS system will help you in keeping track of the total sales you have received.
You can keep your POS password protected and only give you and the manager access to it. Once an order is placed and sent to the kitchen or bar, the ticket cannot be changed without the manager or owner’s password. This will prevent employees from editing and voiding the bills.
And, consider implementing only the restaurant owner and manager should have access to the safe. The fewer hands that touch the cash, the less chance of it being stolen. Even if some discrepancies occur you know whom you should be asking to.
7. Invest in reporting & inventory management technology
Unfortunately, preventive measures will only lower employee theft, but they won’t eliminate it. A POS system can only help you if the kitchen staff and bartender know not to give out orders without a ticket.
That’s where your final strategy comes into play: conduct regular reporting and do physical inventory check.
The major reason why employees steal is because no one is watching. When the restaurant owner is not involved in the business and doesn’t do audits, the employees will find it easy to steal from the restaurant.
Conduct daily inspections every pre-opening, shift change, and closing time. Ask your employees to stock-take and write down the amount of food wasted at the end of every shift.
You can use a digital checklist management like Nimbly to perform reporting and stock-taking easily and effectively.
If the kitchen staff knows they are accountable for the food inventory, they will be careful to keep track of it. Also, it helps bring accountability that they are cooking the food properly to avoid waste.
8. Have employees sign a non-disclosure agreement
Lastly, you may want to have your kitchen staff sign a nondisclosure agreement. Again, being a great boss can really work to your advantage. Treat your staff with trust and respect, and they’ll usually repay you in kind.
How to handle suspected employee theft
Double-check that theft is 100% the cause
If there’s a discrepancy between the bills, and inventory, rule out every other possibility before accusing your employee.
Could you have misordered the stocks, or did your vendor make a mistake while delivering your order? Could there have been an issue with taking incorrect bills?
Triple-check that theft is 100% the cause. There’s no going back if you wrongly accuse an actually trustworthy employee.
Give penalty-free window
If you’re absolutely certain a theft has occurred, speak to your entire team instead of accusing an individual. Let them know that there’s some amount of item or money is missing. Explain that you’ve checked all other possible reasons, but sadly misdoing is the only cause left.
Then, give a penalty-free window. Tell them that if it’s returned within three days, there will be no consequences, either legal or in terms of their employment.
Deal with the culprit
If it is returned within the time frame, sit down with the employee who returned it and give a second chance. Find out what’s going on with them and why they took it.
If no one returns it and you find out the culprit through the camera or a team member, approach them with empathy. They might be doing this under financial pressure.
If there’s no real reason for the theft, it’s reasonable to let this employee go. Pay their last paycheck in full, and tell them their contract is over, effective immediately.
Whatever disciplinary measures you take against the employee, do it discreetly. Embarrassing a staff member will only lead to other workers sympathizing with the culprit, or even worse might make the culprit do things that endanger you and your business.
If you’re inclined to pursue legal action against an employee, consult a lawyer before you do so. You might find out that you don’t have a strong case or that the process will be more expensive than the loss of the missing item or money.
Opportunities for employee theft might be huge in your field of business, but if you pay your employee well enough, treat them with respect and build a sense of ownership in their work, there’ll be less impulse in your employees to steal. Be diligent about sales and inventory reports, develop a clear and fair policy and invest in technology to keep your business running peacefully.
Nimbly is a mobile solution that turns manual operational processes into actionable insights. By digitizing manual checklists and converting the collected data into real-time insights, Nimbly enables companies to monitor, manage, and evaluate business operations effortlessly.
Consult how your business can start implementing operations management with the Nimbly team free of charge.
What to read next: 3 Benefits You Will Gain by Implementing Operational Audit