The restaurant industry is notoriously difficult, even without the numerous fraud risks. The truth is, when you’re working on razor-thin profit margins, you can’t afford to lose any money to criminals. To safeguard your business against ill-intentioned employees, customers, and vendors, take steps to strengthen your restaurant’s fraud protection strategies.
Gaps for Exploitation
Your restaurant may have high transaction volumes but require technology that connects point-of-sale, inventory, and accounting systems. This creates gaps for fraudsters to exploit. Employees could, for example, provide food and drinks to pals without recording sales data, or ring up only a fraction of their friends’ purchases. They can issue voids or refunds where there was no original sale and keep the cash. Alternatively, they could overcharge customers by charging for premium beverages while serving alternatives that are less expensive.
Although intangible (intellectual) property theft is less widespread, it poses an issue. To compete in the dog-eat-dog food service industry, your business may use confidential recipes and marketing plans. If a departing employee shares such proprietary knowledge with a competitor, your restaurant’s very survival may be jeopardized.
Inside Jobs
Restaurant owners frequently hire bookkeepers to handle back-office operations but may fail to provide adequate oversight. Such an environment may allow crooks — or even normally honest people under unusual financial demands — to falsify the books. In one common approach, the bookkeeper creates a fictitious vendor account, files and authorizes bogus invoices, and then directs payments to a bank account he or she owns.
Even if bookkeepers are honest, the bills they process may not be. Managers may find it challenging to keep up with the daily flow of food, beverage, and supply deliveries. Vendors could take advantage of the disarray by inflating their bills to indicate more or pricier items than were actually delivered. When vendors collude with restaurant workers, especially receiving or accounting staff, theft can have a significant financial impact.
Multifaceted Approach to Prevention
Combating restaurant fraud requires a multipronged approach. For example, if you haven’t already, combine your accounting, inventory, and sales systems. To prevent occupational fraud, conduct background checks on new recruits, install video monitoring around your restaurant, and understand how to recognize red flags. Keep a watch on servers who are constantly flush with cash, or purchasing managers who have especially close relationships with vendors.
If not already available, create a confidential fraud reporting hotline that is accessible to customers, vendors, and employees. Also, hire a CPA to analyze your financial records for irregularities at least once a year.
Ask Us
Contact us for assistance in building internal controls that can reduce fraud risks. And let us know if you suspect fraud and would like an expert to investigate.
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