Mitigating the risk of loss in restaurants through theft is an ongoing challenge. Automation has improved security in transactions as well as back-office functions. But with top concerns in the restaurant industry being wholesale food costs and building and maintaining sales volume, the reduction of theft can improve those concerns for restaurateurs. We review the key areas for employee embezzlement and provide guidance on limiting loss with proper checks and balances.

In 2015, Texas reported a 4.8 percent growth rate in restaurant sales, one of the highest in the nation. Restaurant employment grew by 22 percent.

Texas is experiencing one of the highest growth rates in the country for restaurant sales, according to a 2016 survey by the National Restaurant Association. However, members cited the cost of food and the ability to build and maintain sales volumes among their top concerns.

Employee embezzlement could be a hidden contributor.

Restaurant owners and managers are always looking for ways to reduce overhead costs while keeping their prices competitive for the market. A hidden contributor to overhead costs and lost margins is embezzlement. If food or money walks out the door consistently because of employee theft, it needs immediate attention.

Anyone who has worked in a restaurant has probably witnessed questionable behavior — not just from the patrons. History has shown that some employees — from the line cooks to servers and management — can demonstrate unethical and even criminal behavior when presented with an opportunity to put a little extra in their pockets. It is up to management to put safeguards in place to reduce those employee embezzlement opportunities.

Common types of theft in restaurants include:

• Food theft from deliveries or freezers
• Prepared food and beverages given to patrons (unticketed)
• Theft of equipment and supplies
• Pocketed cash for undocumented orders
• Patrons overcharged and the difference pocketed
• Misuse of discounts, reward programs or coupons
• Fake accounts payables
• Underreporting daily receipts
• Underreporting of earnings to franchisor and investors
• Theft of recipes, processes or intellectual property

As an owner or franchisor expands to more than one location and relies on management, the risks of theft can increase. The impact of theft over time can be exponential, including a lower return on profits, an inability to reinvest in the business or provide employee benefits as well as difficulty recruiting and retaining staff. Restaurant communities tend to be small, close-knit groups who can quickly identify red flags with regard to a restaurant’s ownership or management. Reputation is critical to keep top talent and attract patrons.

In the next restaurant blog article, we will address each of these risks with solutions that incorporate a combination of automation and sound operational controls.

Continue Reading: The Most Common Types of Restaurant Theft

Cornwell Jackson has worked with retail businesses, including restaurants for decades, and provides direction on compliance as well as business advisory services. We help restaurant owners and franchisors determine policies and procedures, investments in technology and the viability and timing of additional locations. If you have questions around employee theft and how our team can support your accounting processes and daily POS or reconciliation methods, contact us for a consultation.

Scott Bates, CPA, is a partner in Cornwell Jackson’s audit practice and leads the business services practice, including outsourced accounting, bookkeeping, and payroll services. He is an expert for clients in restaurants, healthcare, real estate, auto and transportation, technology, service, construction, retail, and manufacturing and distribution industries.

Originally published on March 1, 2016. Updated in 2018.