Even without the threat of fraud, the restaurant business is tough. With typically slim profit margins, you can’t afford to lose any amount to fraudsters. Therefore, you should take steps now to fortify your restaurant against ill-intentioned employees, customers, and vendors.
Gaps For Exploitation
Your restaurant may have high transaction volumes but lack the technology linking point-of-sale, inventory, and accounting systems. This leaves gaps for fraudsters to exploit. Employees could, for example, provide food and drinks to friends without entering the sales — or ring up only a portion of their friends’ bills. They might issue voids or refunds when there was no original sale and pocket the proceeds. Or they could overcharge customers by, say, charging for premium beverages but serving cheaper alternatives.
Although intangible (intellectual) property theft is less common, it’s another risk. Your restaurant may use proprietary recipes and confidential marketing plans to compete in the dog-eat-dog world of food service. If a departing worker takes such secrets to a rival, it could threaten your restaurant’s survival.
Inside Jobs
Restaurant owners often employ bookkeepers to manage back-office operations but may neglect to provide proper oversight. Such an environment may enable criminals — or even usually honest people experiencing unusual financial pressures — to cook the books. In one frequently seen scheme, the bookkeeper creates a fake vendor account, submits and approves fraudulent invoices, then directs payments to a bank account they control.
Even when bookkeepers are honest, the invoices they process may not be. Managers may find it difficult to keep track of the daily stream of food, beverage, and supply deliveries. Vendors could exploit such chaos by inflating their bills to reflect more or pricier items than they actually delivered. When vendors collude with restaurant employees, particularly receiving or accounting staff, theft can exact a heavy financial toll.
Multipronged Approach To Prevention
Successfully combatting restaurant fraud takes a multipronged approach. For example, if you haven’t already, integrate your accounting, inventory, and sales systems. And to manage potential occupational fraud, conduct background checks on new hires, install video surveillance throughout your restaurant, and know how to spot red flags. For example, keep your eye on servers who are always flush with cash or purchasing managers with unusually cozy relationships with vendors.
If you don’t have one, set up a confidential fraud reporting hotline that’s open to customers, vendors, and workers alike. And engage a CPA to review your financial records for discrepancies at least once a year.
Ask Us
Contact us for help establishing internal controls that can reduce fraud risks. Also let us know if you suspect fraud and need an expert to investigate.