Restaurant Fraud & Theft – Part IV

The first three posts in this series covered fraud and theft of products entering the establishment, food theft, and alcohol theft.  Now, we’re going to look at outright theft of sales receipts.  While it’s unlikely that your servers are grabbing handfuls of dollars on their way out the door, today’s post looks at several more sophisticated methods of achieving the same result.

Many restaurants offer discounts to their guests once in a while.  Usually, these discounts are in the form of customer “comps” or “treats”.  Sometimes, customers or potential customers are given coupons to be redeemed for discounts.  Used properly, there’s nothing wrong with this practice to generate new business and reward loyal customers, but in the wrong hands, it’s the equivalent of handing out cash!
If you mail or deliver coupons to your potential customers, they receive the coupons, directly.  Giving out coupons in the guest check folder, at the front desk, or printed on a business card, makes them available to anyone, including your staff.  Not only can servers use these coupons to steal cash, they can give coupons to their otherwise full-paying, “regular” customers in return for a higher tip.  Unless your establishment has very strong supervisory controls, you must issue coupons directly to your customers or potential customers.
If coupons are used in your establishment, you must maintain control over all redemptions.  When a guest uses a coupon, the server must submit the coupon with the guest check to support the discount applied to the bill.  This helps prevent giving discounts that are not supported with a coupon, but what about supported discounts that really shouldn’t have been allowed?  If servers have a supply of non-personalized coupons, they can be used to “support” discounts on guest checks.  It’s difficult for a server to improperly use a coupon on a guest check paid by a credit card, unless there is collusion with the guest.
The real risk is with cash paid guest checks.  A guest, without a coupon, pays the full amount of the check.  After the guest leaves, the server attaches a coupon and enters the discount in the POS.  The server pockets the amount of the discount plus the taxes that were paid on the discount by the customer.  It may be possible to detect this type of theft, after the fact, by examining server cash paid checks.  If a server has a significantly higher percentage of coupons applied to cash checks than charge checks, you can be pretty sure this type of theft is being perpetrated.
To catch this fraud before it happens, you’ll have to closely observe your servers as they present guest checks to customers, collect payments, and close out checks on the POS system.  You’ll be looking for checks paid in cash without discount coupons.  For these you want to make sure the check is closed out at the time of the customer payment and that no coupon discount is applied.  If servers fail to close out cash-paid checks promptly, there is a risk that the server will apply coupons later in the shift, pocketing the cash.
Many restaurants provide complimentary dinners for charities.  Rather than providing certificates with a set value, most provide letters and/or paper certificates that entitle the guest to “Dinner for Two” or something similar.  The manager should authorize all charitable donation discounts entered in the POS system, to ensure that only valid discounts are processed.  Once used, the certificates should be cancelled to prevent reuse.  Never allow staff to issue charitable donation certificates without management authorization.
Too many restaurants still use paper gift certificates.  GroupOn and other similar companies issue gift certificates that are printed from the purchaser’s computer.  No matter how sophisticated the design, they are easily copied, to be used by others.  Dishonest staff or customers can systematically redeem fraudulent gift certificates.  By the time the fraud is detected, it is too late.
Sometimes, servers don’t even need to copy the certificates, they’re available on site.  Management must maintain control over all gift certificates, otherwise staff may gain access to them and present them as valid certificates.  It is good practice to cancel all certificates after redemption, to prevent unauthorized re-use.  A log should be used to record purchases and redemptions of gift certificates.
The best defense is the use of magnetic strip gift cards.  Ideally, these should be processed through your credit card authorization system, as offered by Moneris and others.  These systems provide better control over the issuance and redemption of gift cards.
Even without a zapper cash can be skimmed from sales – the old fashioned way.  Letting servers and bartenders keep tables open after the check has been paid in cash invites fraud.  There are several variations on this one, but the most common one is to reuse a cash paid guest check with another table later in the shift.  Modern POS systems make it quite easy to split bills, allowing the dishonest server to split items on a cash paid table, into several cash checks each with an individual item, and transfer them to new tables.  Then, it is just a matter of finding another customer to purchase the previously rung in (and paid for) items.  This type of theft works well in a busy bar situation.
Well-run restaurants require manager approval for transferring items from one table to another.
A dishonest server collects cash to settle a guest check, claims the guests pulled a “Dine-and-Dash”, and tries to get management to cancel the entire bill.  Another variation is to claim that the customer complained about an item ordered (or the service) and use this to justify discounting or voiding items off the guest check.  Once again, if the check is paid with cash, the void can be performed after the guest pays, and the server keeps the difference.
The lessons, here, are to supervise staff to ensure all settled tables are closed promptly and never allow service staff to use discount and void keys without authorization.  Even though it is not lawful to hold servers financially responsible for walk-outs, most restaurants make their servers “know” that they will be held responsible, as a method of minimizing this type of fraud.
This concludes the current series on fraud and theft in restaurants.  Obviously, I have not discussed every tactic employed by dishonest suppliers, customers and employees.  I have tried to outline the more significant thefts and how to minimize their impact on your restaurant.  Not only is theft costly in terms of inventory “shrinkage”, it is the number one cause of assessments for “unreported sales” arising from tax audits.  If more restaurateurs knew this, they would devote more time and effort to minimizing the incidence of fraud and theft in their operations.

2 Replies to “Restaurant Fraud & Theft – Part IV”

  1. Hello,
    I’ve heard many a radio commericals encouraging paying customers to ask for our restaurant bills. There is a restaurant in the XXXXXXXXXXX area that has never given me (or anyone else for that matter) a bill.
    When you wish to settle your bill, the waitress There was a time several years ago where one of the waitresses lost one of her bills and was beside herself to find it. She said “My boss will kill me if I don’t find it!!”.
    The process goes like this:
    You place your order with the waitress. She writes it on one of those order pads that you purchase at Staples/Bureau en Gros.
    When it’s time to settle up, the waitress writes the amount on your paper placemat and you pay accordingly.
    After the recent commercials, I decided to ask for my bill and was told they do not give bills!!! I go there every day for breakfast and the only time the amounts are officially charged is when the customer pays with their bank card.
    Their breakfast goes from 6am-2pm weekends and ends at 11am weekdays. They draw in a large crowd, have XX waitresses to handle the crowd and NONE OF THESE BILLS ARE recorded!
    Once the waitresses shift ends, she organizes her bills and then meets with one of the owners (since there is always one there) and they go over everything and she gives him the order pad with the money.
    This is very unfair. Here is the restaurant information:
    Restaurant XXXXXXXX
    Approximately XX employees work at this location
    Sales: $XXX
    I have been eating at this restaurant and it has been the same setup since it first opened XX years ago. The previous owner, XXXXXX (last name don’t know) carried on the same practice.

  2. I have approved your comment, but I have removed all identifying information about the restaurant, because it is not the appropriate place to make these accusations.
    Without proof of wrongdoing, I will not identify any business as having evaded taxes. That is the job of the various tax authorities. Most tax authorities have “snitch” lines, where concerned taxpayers can inform on tax cheats.
    I suggest that, if you feel the restaurant is evading taxes, you contact the appropriate government tax authority.
    I published your comment, because it shows that some restaurants are still using paper bills and, possibly, evading taxes in a manner that is blatantly obvious to their customers.

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