Fraud and embezzlement take a significant toll on a company’s bottom line. The average annual loss across organizations, according to the Association of Certified Fraud Examiners, is 5%—but with smaller companies often falling victim to greater losses, the impact on restaurants could be much higher.
Should you feel like a target and beef up your security? Probably not—most of the time, embezzlers don’t plan to take money from your restaurant, but fall into the behavior. According to Donald Cressey, author of Other People’s Money, 3 factors lead to embezzlement:
As you can imagine, financial need and the related pressures can push employees to consider taking desperate action. From straight up theft of cash from the drawer, products, food or beverages, and supplies, to more intricate efforts (misusing credit cards, inventing vendors, doctoring receipts), the initial push toward fraud is usually legitimate need.
The very nature of restaurant service requires a great amount of trust on the part of both owners and patrons. Cash and (even more vulnerable) credit cards are handled by servers and bartenders, and most often out of the view of patrons as well as management and ownership. Cash drawers are opened with numerous transactions throughout the shift. Food and liquor are available in bulk (and hard-to-measure) packaging, and are targets for smuggling off-premises.
When an embezzler moves from, “I have need. And it would be so easy…” to, “This is what I need to do,” they’ve rationalized the wrong action as acceptable because of their situation. In some cases, it may be, “I deserve this.” Or it may be as callous as, “I can do this, and I don’t care.” Unfortunately, at that point, regardless of motivation or the steps that led to the result, it’s now a matter of termination or even legal action.
What You Can Do
- Keep lines of communication and accountability open with employees so that when needs arise there is a supportive atmosphere in place. While the restaurant may not be able to meet the financial need, standing with employees and helping them find solutions will help prevent falling into temptation.
- Be vigilant in bookkeeping, checking data, managing shift changes and employee responsibilities, and the reconciling of tabs and receipts. If fraud and embezzlement isn’t prevented, it can be caught more quickly when records are reviewed and managed carefully.
- Build and maintain a culture of integrity, not only with handling money and financial transactions, but with restaurant products (food and beverages). Incentivize brand advocacy, and build community around shared employee meals, events, and parties.
- Establish a consistent drawer and receipt counting process and follow it at the end of each employee’s shift. Maintain stock and inventory records, and use consistent measurements for portioning food and alcohol so that discrepancies will be clear and can be addressed.
- Consider carefully how you will handle an employee you suspect of embezzlement. If there is uncertainty, rather than a blunt confrontation, tell the employee you’ve noticed some inconsistencies and ask for help in reviewing them. This keeps the employee from becoming defensive, and may be helpful in revealing other problems. But it also preserves a relationship if it turns out to be an error and not fraud.
Be consistent. Set clear standards, communicate them, and adhere to them. When expectations are clear and consistent, it is a more productive workplace. And when employees have no doubt that fraud and questionable behavior and activities are not tolerated, your bottom line will benefit as well.
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