The year 2020 has pushed the limits of many industries, including the hospitality industry. Restaurants, particularly, have displayed admirable flexibility and have been forced to focus on narrowing margins on products, staffing concerns, online ordering, business capital funding, and increasing social footprint opportunities. However, amidst this changing environment, restaurateurs should always remain vigilant to protect themselves from fraud and be aware and proactive about mitigating. These times especially, can cause enormous pressure and seemingly logical rationalization for employees, vendors, and others to commit fraud. Employee fraud is the most common and takes observation, analysis, and control procedures to assess and correct.
Employee fraud centers around the services they perform—recording sales, handling cash, access to inventory, and vendor interaction. Choosing the most effective solution to mitigate employee fraud requires an initial investment by the owner, in which the restauranteur should consider the cost versus the return.
Employee Fraud Examples and Mitigating Controls
Recording Sales
- Bartenders not recording sales and/or managers giving other “freebies” to friends
- CONTROL(S): Historical analysis of sales during certain time frames for each day by the server and comparing to local and national averages; installation of a camera system over bartender/manager transactions and Point of Sale (POS) systems; schedule a secondary manager during busier times or hiring outside spotting services to oversee activity
- Servers loading entrees with costly ingredients free of charge
- CONTROL(S): Move all food preparation responsibilities to kitchen staff; require a system ticket to ensure product consistency
Handling of Cash
- The server turns in the checkout report shorting the cash owed
- CONTROL(S): Manager collects checkout reports and verifies all cash collected before server departure; perform surprise cash counts
- An employee alters tip amount on credit card slips.
- CONTROL(S): Manager reviews credit card slips and compares to the checkout report or duplicate guest check for variances; ensure all registers and credit card printers are visible to customers; assign manager not responsible for serving with the task of answering customer complaints
- Bartenders pocketing money from the bar till
- CONTROL(S): Limit the number of employees handling cash to those who must have access; purchase locks for till or a till that opens at acceptable times working in tandem with POS system
- CONTROL(S): Limit the number of employees handling cash to those who must have access; purchase locks for till or a till that opens at acceptable times working in tandem with POS system
Access to Inventory
- Employees take bottles of liquor or whole food ingredients from inventory.
- CONTROL(S): Implement a no bag policy for employees; lock and store all liquor with limited keys; keep non-service doors locked during operation hours; monitor all inventory transfers from storage area to service area; perform daily/weekly inventories
- Employees taking leftover food home (without permission)
- CONTROL(S): Managers should walk the floor during service and routinely check for obscure storage areas; indicate in employee manual what employees can take home (if anything)
Vendor Interaction
- Vendor price hikes during busy times of year
- CONTROL(S): Routinely check prior month product costs with present invoices to catch discrepancies
- Purchase price of equipment including referral fees paid to employees
- CONTROL(S): Compare purchase orders to invoices and/or independent market value of equipment; implement a no-commission clause for all employees
- An employee receives large gifts or trips paid by the vendor for securing product placement.
- CONTROL(S) Inform all vendors that all gifts need to be pre-approved by the owner or management
Proactively mitigating fraud through process observation, segregation of duties, and random testing of control protocols will ensure time to focus on guests’ dining experience. Trusting employees while at the same time, removing as many tempting opportunities as possible for fraud will create a less stressful environment. Should the need arise for external consultation on any scenario involving the mitigation of fraud, know that ATKG is on board to help. Reach out to your trusted ATKG advisor to address any questions or concerns you might have.
Stay tuned for our follow-up issue addressing online fraud, which is on the rise during the pandemic.
Marcus Cantu is a Tax senior with ATKG and an excellent example of a business professional who successfully started a second career. He spent several years in management for the foodservice industry before starting his career in public accounting. He is a proud, two-time the University of Texas at San Antonio alumni with a Master of Accountancy and a Bachelor of Science in Biology.
