Restaurant Owners, While Your Business is Closed or Reduced Due to the Coronavirus, Here Is Something to Consider for Protecting Your Business’s Future

 David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

 “I originally wrote this blog before the coronavirus caused the local and state government officials to close down or reduce the business of most restaurants.  However, while your business is closed or reduced, you might want to consider the issues raised and recommendations offered in this blog for protecting your business when you reopen.” – DAA

Restaurants lose between $3 billion and $6 billion to employee fraud each year, according to the National Restaurant Association.

Recent surveys, says David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, show about 75 percent of inventory shortages and 4 percent of sales shortages are due to employee theft.

In fact, approximately three-fourths of employees steal at least once and approximately one-half steal repeatedly.

Given these startling statistics, how can restaurants fight this fraud? Anderson, a Certified Fraud Examiner, wants you to know some of the more common types of restaurant fraud, and ways these different frauds can be prevented or minimized:

Cash Skimming: In these schemes, employees use various methods to divert cash.  These include such practices as:

• Entering lower sales amounts or less expensive items into the cash registers than were sold and pocketing the difference;
• Recording unauthorized discounts or refunds but keeping the difference,
• Voiding sales and pocketing the proceeds; and
• Giving back more change to an accomplice than that person is entitled to. For example, being paid with a $10 bill, but giving back change as if the person had paid with a $20 bill.

• Among the ways to combat cash skimming are:
  • Utilizing a point-of-sale ordering and cash register system;
  • Requiring employees to enter their employee number when using the cash register;
  • Limiting each employee to using a single cash register during his or her shift at restaurants with multiple cash registers; and
  • Installing cameras to record cash register usage.

Inventory Theft: In these schemes, employees use various methods to misappropriate inventory.  These include such practices as:

• Outright theft of inventory;
• Overpours of liquor. This involves serving more liquor than is recorded by the bartender and often results in a higher cash tip – and
• Under-charging friends and family for meals. This is like the cash skimming schemes, but instead of pocketing cash, the friends and family receive more expensive meals than those for which they are charged.

• Among the ways to combat inventory theft are:
  • Utilizing a point-of-sale ordering and cash register system;
  • Having a manager regularly count all inventory, or at least such more expensive items as lobster, steak, etc.;
  • Utilizing liquor control systems to provide precise pours and track liquor usage; and
  • Installing cameras to monitor employee exit doors to see if employees are leaving with inventory.

Payroll Fraud: In these schemes, employees either:

• Clock other employees in or out even when the other employee is not present; or
• Managers clock former employees in and out, and then split the pay with the former employee.

• Among the ways to combat payroll fraud are:
  • Requiring multiple levels of approval for time sheets/time cards, including reconciling schedules with time sheets and time cards;
  • Having a third party – or the owner – hand out paychecks;
  • Using an outside payroll service; and
  • Installing cameras to monitor time clocks.

Of course, the most important way to combat restaurant fraud is to regularly inform employees that fraud and theft will not be tolerated, and that management is watching.

Some restaurant owners have told Anderson that many of these recommendations are too expensive for them to implement.  However, when they learn just how expensive restaurant fraud can be for them (for example, a restaurant with $1,000,000 in annual sales is likely losing $200,000 over a five-year period – using the above-mentioned 4 percent of sales lost to fraud number), they quickly understand that spending a fraction of that number can save them many thousands of dollars.

If you are experiencing restaurant fraud, or fear you might be, you should be working with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. When you need the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling him at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.