The National Restaurant Association estimates that 75% of restaurant inventory shortages are due to internal theft, and QSRs will lose a whopping 7% of sales due to employee theft. Cash-skimming and register voids continue to plague restaurant owners, but new schemes, like loyalty point fraud, are also gaining more traction. As a result of these increasingly devious schemes, restaurant leaders must identify fraud and correct it to protect their bottom line.
Net profit margins remain slim in the restaurant industry, ranging from 3%-5% for full service and 6%-9% for fast-casual dining. Narrow margins mean that restaurant owners must focus on accurate accounting for all types of inventory loss. This means keeping an eye on inventory shrink-related schemes.
Here are a few things, intentional and not, that can result in inventory shrink include:
Currently, restaurant companies are using video cameras to confirm losses while relying on inventory counts to identify potential areas of waste or theft.
As many consumers turn to credit cards and intelligent-pay phone apps to pay for their restaurant tab, there is still a significant percentage of customers who pay in cash. An estimated 60% of transactions under $10 are paid in cash, while less than 30% of US adults claim they make no cash purchases each week. Nevertheless, cash is still king, and restaurants will need to look out for transactions that don’t seem quite right.
Here are some common ways employees may be stealing cash:
Internal controls, including closing out the drawer at the end of the shift, will help keep employees honest while tracking actual cash collected versus what was rung into the register. Video cameras can also confirm if any customers did leave the restaurant without paying and instances where the employee may have pocketed the cash.
Fortunately, advanced POS systems find anomalies that can point to potential fraud, helping restaurant managers identify specific employees or items affected by voids, cancellations, transfers, and other transaction manipulations. Once found, they can notify the employee or provide advanced training to correct behavior.
If you’re operating without an advanced POS system, make sure to be mindful of these scams:
It is not just the front-line employees responsible for shrink and theft. Backroom fraud also occurs with managers who also play a significant role.
Fortunately, identifying these schemes is getting easier as restaurants use more automated systems to track inventory, integrate with vendor systems, and send alerts to security teams when a red flag is noted. Advanced POS and analytics investments help restaurant owners protect their reputation and profits with an early-warning system that identifies potential managerial fraud.
Recently, a McDonald's employee had posted a viral video receiving over 1.6 million views on TikTok, showing how they manipulated the drive-thru screen to add points to their personal loyalty card from legitimate customer transactions. The employee had managed to accumulate over 40,000 points before getting caught by management.
The growth of loyalty programs and apps means a new path for employee theft and transaction manipulation. Restaurant leaders must monitor potential loyalty fraud as employees learn to accumulate discounts and points that can drain profits over time.
Learn more about the different types of Theft & Fraud.
See the 9 Steps to Building an Efficient Restaurant Loss Prevention Strategy.
Learn more about how to Combat Theft & Fraud.