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Bar tender at a cash register

Tipping the Till towards a pocket

Employee Theft  (a.k.a. employee retirement plan)

stealing

If you own a small business, or a large one, you can expect at some point in time to experience employee theft. Employee theft comes in all shapes and sizes from physical theft of merchandise to white collar crime in the back office to insider information helping with diverting trucks and their contents. Let me share a conversation I had with a business owner last week.

I was talking with a man named Frank who confided in me that He was going to buy a restaurant at one point. So, he took a job and went in as kitchen help to get the lay of the land first. The first day he was on the job scraping and washing plates, two servers approached him to see if he wanted in on some action. The action was to misrepresent table tickets if the customers paid cash. Once the real ticket was paid the servers would create a new ticket with different entrees. The new ticket would be for considerably less money and the servers would pocket the difference. This had been going on for years and the servers were quite satisfied with their augmented compensation plan

It turns out the present owner was compelled to sell his business because he could not make enough in revenue to cover the restaurant employee salaries and operating expenses. He had been forced to dip into his savings to cover the cost of running the business. As most small business owners, he considered himself good friends with his servers. He even vouched for their ethics to Frank in saying that the employees understood the tough times he was going through and had never approached him for any pay increases.

One day Frank just didn’t show up for work and the restaurant employees paid no heed to his absence. When Frank made an offer to buy the restaurant he told the current owner that he was going to fire the entire staff and start fresh. To which the current owner replied that keeping the staff was part of the sale of the restaurant. It seems his friends had pleaded with him to agree that any sale would have to include them keeping their jobs in the sales contract.

Frank shared with me that he laughed and chose not to buy the restaurant. He then went on to disclose to the owner what was happening behind his back and that the numbers Frank had run showed the restaurant to be a profitable enterprise. Frank suggested that the present owner fire his staff contact the police and start with a new group. The present owner chose not to believe Frank and the sale of the restaurant fell through.

So, what could the owner have done to avoid the problem entirely.

In this situation the owner was a genuinely nice guy who chose to believe in the good nature of people and deny that they would conspire against him and steal money. This is the refreshing profile of most restauranteurs across America. They are genuinely nice people who enjoy serving other people good food and welcome people into their extended home – their restaurant.

First mistake is a common one. The owner derived his identity from the restaurant and saw his role as one of protecting his employees from potential harm. After all they are like family. As a restaurant owner one cannot look at the restaurant as anything but a business. The owner is the one who is primarily responsible for operating the business in a profitable ethical manner. This does not mean that an owner can’t be friends with employees or take pride in the operation of the restaurant. The owner has to establish clear boundaries with employees that sometimes are hard to swallow, but are necessary in order to keep a clear chain of command and maintain healthy employee expectations.

The employees of the restaurant, in the example above, had no expectation of repercussions as a result of their behavior. In fact they were emboldened enough to approach Frank (a complete stranger) on his first day and bring him into the scam they were operating. The owner clearly did not exhibit the primary role of the business owner which is to protect the business revenue stream. The owner also seems not to have exhibited leadership by either alerting or demonstrating to employees the consequences of unbusiness-like behaviors.

Second mistake is also a common one. The business owner failed to have any checks and balances in place to provide an alert that there might be a problem with table/ticket revenue. As a business owner, you must institute oversight management into all areas of your operation. Since you are only one person, you need processes that provide checks and balances. The processes result in data that is used to identify potential problems. Of-course data without record keeping is useless except for the immediate reporting period. Get a laptop, if you don’t already have one, and start tracking the data from reporting period to reporting period.

What kind of checks and balances could have been put into use

The most fundamental and easiest method to detect potential problems is to institute accountability. As an economics professor long ago shared with me: “just do the math”.  guest ticket In our example, the problem of rewriting order tickets could have been detected by performing an audit on ticket numbers. If you are using a paper-based ticket ordering system, there is a sequential number printed at the top of each ticket in an order pad. The owner could have requested that all tickets be retained regardless of the potential errors written on the page. The order pad tells a story of the interaction between the server and the customer. As a restauranteur, learn to read the story and then act accordingly based on written information.

So, you have the tickets – now what? A simple cross check with what the kitchen prepared to what was written on the order would have quickly established that the kitchen was preparing food that was not generating revenue. Add to that the number in the party at the table and the owner would have quickly seen that there was a discrepancy in food prepared to the number in the party at a table. This owner wasn’t doing the math!

Even if you are not using a paper system or you use a combination of automation and paper, your Point Of Sale system (POS) performs the same logging of server activities of: order generation, order editing, closing out the order, edits/credits, etc. Cross check orders with what the kitchen is preparing along with what is claimed to be thrown away, and you quickly have a picture of your restaurant’s activities and what scams could be developing. POS systems have contributed a great deal to thwarting fraud in restaurants.

How do I protect against dipping into the till.

This is one of the oldest forms of theft in restaurants. Albeit POS systems make adding up what should be in the till easier, a till mismatch still a common occurance. The theft from the till occurs in one of two ways. First, when a server is making change, an extra bill is lifted from the till as the server counts out the change. That bill is then pocketed and the night continues. At the end of the night there is a discrepancy in the till amount that is attributed to employee error.

The best way to stop dipping into the till is to do one of two things. First, have only one person operate the till. With one person responsible for the till it is a straightforward accountability event. If the till doesn’t add up, the person operating the till is responsible for any losses discovered. Try to keep your checks and balances tight enough to single out as few people as possible. There is an unwritten code of protection between servers. Often one server will not disclose what another server is doing – protecting the server. The downside is that if a problem does surface with one server and it is apparent another server was aware, then both need to be disciplined or let go.

Second, install video cameras tied to the POS system that watch as the change is counted out. Typically, the POS manufacturer will suggest that the tendered amount from the table be laid out crosswise over the till before any change is made. The tendered amount is then set above the till and any change is then laid out crosswise on the till. Then the original tendered amount is placed in the till and the drawer is closed.   POSIntegrationThe camera records the event and associates it with the ticket in the POS. If an audit is made the ticket will show the amount of the bill, the camera will show the tendered amount, any change taken from the till, and the original tendered amount deposited in the drawer. The video stops when the drawer is closed.

f your POS is not able to tie video into the drawer opening then just get a Digital Video Recorder (DVR) and record the cash drawer area regardless of the till being opened or not.

For those restaurants with an active bar, watch your bar till. There is something about the behavior in the bar that tends to amplify the tendency to pilfer from the till. I suppose it’s the darker lighting, frequency of opening the cash drawer, or the autonomy with which the bartender operates. Whatever the reason, make audits a common practice.

The till is okay, my servers aren’t stealing, and I still have losses

If you are still experiencing losses and you have performed an audit of the till activity and it shows no losses then the loss from the till is happening after the servers have tipped out and gone home. That would point to the manager on duty. This is also not uncommon, but should be easy to identify. The daily receipts report from the POS should square exactly with the bank deposit less any tip out that occurred with the servers or other credits. Any mismatch is the responsibility of the manager on duty. Depending on the POS, the manager on duty may have the ability to edit the daily receipts. If this is the case, you will have to look at trends over time and see if there is a pattern of lower daily receipts when a particular manager is on duty. If you only have one manager, then you must become the other manager for a period of time to perform the daily receipts trend analysis.

Monetary theft is accounted for what about food theft

There will always be some waste in a restaurant kitchen. Let’s face it – food gets burned, poorly cooked, not to the customer’s liking and has to be thrown out and re-prepared. It is the server’s responsibility to account for a replacement meal, but it is the responsibility of the kitchen to account for errors in food preparation. If you are large enough to have a kitchen manager then it is the responsibility of the kitchen manager to note these losses which would include spoiled foods from the walk-ins and food mis-prepared. A periodic accounting of ordered food with spoiled foods including mis-prepared foods should be made and repetitive failures in the process dealt with. If a cook is just bad the their job, they either need training, reassignment, or need to be shown the door.

 

The bar is a different story

A very common fraud, other than dipping into the till, is over filling mixed drinks and topping off beers. Let’s face it, the bartender gets tips for making patrons at the bar happy with the service provided. This is usually from adding a bit more liquor to a mixed drink or topping off a beer. Periodically, the owner of the restaurant should do an audit of how much liquor is reportedly served and what the POS system reports was actually served. Pretty simple right? When you discover that you are serving more liquor than the POS is reporting you have to go back to basics and pull out the jiggers.

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Measured carafs are available to help bartenders with estimating portions of wine as are marked glasses. Beer portions are straight forward. A full glass of beer is one portion. It is the liquor portions that the bartender must master if the bar is to remain profitable. There are only a few options here. The counting method, when taught to all bartenders uniformly, is usually accurate.

The counting method is when a bartender counts the number of seconds a liquor bottle is inverted over a glass and pouring (important detail – the bottle needs to have a pouring spout). The number of seconds inverted translates to the number of shots, or portions of a shot, received in the glass. The most accurate method is to use a measured glass and pouring out liquor amounts into the glass and then into the drink. This takes some time to pour out measured amounts in an intermediary glass. It becomes counter productive if you have an active bar. There is a point where the identification of losses is overshadowed by the business revenue lost due to liquor portion control methods.

The third method of loss control might be the best. The third method is to allocate a bottle or bottles to bartender discretion. These bottles are given to the bartender to use in encouraging patrons to order more drinks and food. Check with your Alcohol Beverage Control people in your state to make sure no laws are broken!

What have you found to be effective in controlling bar losses?

 

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