post image

How to Prevent Employee Theft in Your Restaurant

Lifelong restaurateur and former Famous Sam's Inc. Chief Operating Officer David Scott Peters knows the answer: The enemy is within. According to National Restaurant Association studies, employee theft averages just under $220 per person each year. If you employ an average of 20 employees, you're losing $4,400 per year. In an industry that employs more than 9 million each year, losses like that can add up to $1.98 billion annually -- and experts caution that this number is probably very conservative. 

For many restaurateurs, the answer to combating employee theft is to simply install security cameras. Peters disagrees in theory. "I think they're a wonderful tool but I don't think they're a wonderful tool for what most people buy them for," Peters says. He says that while cameras are useful for reviewing an incident that may have taken place in a restaurant parking lot or to defend against a liquor violation, they're generally useless against combating theft.

If somebody has stolen something from you, it's gone. You're now viewing it on a video; it's already happened. Cameras are wonderful for situations but they're reactive. I'd rather be proactive by having management on my floor and systems in place.

The secret to combating this, Peters says, is to install a series of "SMART" (Simple, Measurable, Applicable, Repeatable and Trainable) systems to remove you and your restaurant off the honor system. Peters' strategy is simple -- by using these systems, restaurant owners are able to keep the honest people that work for the restaurant honest. 

"Most of us have to take a moment and decide whether or not we're going to be dishonest today," Peters says. "With a dishonest person, there's nothing that will stop them -- systems, cameras, you name it ... security guard. A dishonest person is dishonest. But if we can keep the honest people honest by just making them think they might get caught, they stay [honest]."

One: No Tickee, No Drinkee

One of the many ways employees steal from restaurants is by banding together in simple schemes designed to keep orders off the register. Peters acknowledges that many restaurants now use expensive and powerful data-driven point-of-sale (POS) systems. Make sure that your employees are using it. 

"You go into any restaurant and they have a POS system and you see a server calling out an order to a bartender, getting the drink, bringing it over and no ticket was ever rung up? 

You know they're getting ripped off."

The rule here is easy enough, Peters says. "No ticket, no drink," Peters says, adding that "in most states the liquor law says you have to ring up a drink before you can present it anyway."

Two: Count Your Coupons Like Cash

"Some servers have figured out how to make a lot of extra money on any promotion we do ... even if it's a bad one," Peters says. The scenario seems common enough: a patron pays for his meal and presents a coupon to the server. The server brings the coupon to the manager and the manager enters the discount into the POS system. Seems easy enough, right? Wrong. 

"What we didn't do there ... we didn't write void, we didn't put a black marker through it, we didn't rip that coupon, so that it can't be used again," Peters says. "Because what [dishonest] servers will do is, they will keep that same coupon and keep presenting it to you and pocketing the discounted money."

Peters advises accounting for coupons in the same way you would cash or credit cards. 

"The coupon represents money," Peters says. "If we audit it and we void it at the time that we take the discount, you're going to take the tool to steal right out of their hands."

When running your server reports at the end of a shift, Peters recommends checking your discounts and making sure that there is a corresponding amount of coupons stapled to their accompanying order ticket.

Three: The Perpetual Inventory Form

The unscrupulous bartender can stock his personal bar from your restaurant's liquor cabinet if you lack the proper inventory procedures. Peters advocates the creation of a "perpetual inventory form" -- a control form that tracks every bottle into your liquor closet and every bottle that comes out during the week. 

For the system to work, managers must conduct a physical inventory -- counting bottles on premises -- at the end of their workweek. Then, a form is created that lists the days of the week in columns. During the week, whenever a bartender needs a new bottle of alcohol, he brings the empty to the manager, who then places the bottle into the storage (Peters suggests storing the empty temporarily in a milk crate), takes the replacement bottle, and marks it on his perpetual inventory form. 

"When you get to the end of the week, you're going to have the ability to then take a physical inventory and that physical inventory should equal the beginning of your inventory, less your purchases, minus everything that left the shelves during that week," Peters says. "So you have a great track record of bottle in bottle out." 

The only weakness of the system is laziness, Peters says. He recounts his own experience as a floor manager in a restaurant. He loved the banter and the give and take with customers and was often reluctant to accommodate a bartender's request for a replacement bottle. Realizing that customers were probably waiting for a drink somewhere, he preferred to hand his bartenders the keys to the liquor cabinet rather than do it himself. 

"I'd say 'OK' and I'd reach in my pocket and I'd throw him my keys. They'd go off, they'd get the liquor, they'd come back, give me my keys ... I didn't have to move. Everything was just fine."

The problem, Peters learned, was that his bartenders weren't trained on the perpetual inventory form, so when it came time to conduct another inventory, the control sheet was worthless. Also, by handing out the keys to various employees, he learned that they were jamming the door shut instead of locking it and returning later in the evening to steal product -- usually as he was locked in the office, counting money. The solution was to limit access to the liquor cabinet. "When only managers have access, then you have a clear line of responsibility when something's not right," he says.

Four: The Surprise Cash Count

Peters says that from his experience as a bartender, he never knew a bartender who didn't steal from a restaurant -- knowingly or not. And that includes himself. 

"When I was brand-new to bartending, I used to go out to clubs and I'd go out with friends," Peters says. "They knew the bartenders, the bartenders would hook us up and I got free drinks. So now I'm a bartender, now these bartenders come to see me, what am I supposed to do?" 

Peters says he offered them the same hospitality in return. "It's kind of like a code of ethics," he says. "We didn't understand what it cost to run a place." 

Smart bartenders know that their cash drawer has to match their sales and that their sales must match their inventory. To keep to this code, bartenders employ a variety of tactics. One such way is the "short pour." 

"If my standard pour is an ounce of liquor, and I've got a customer that comes up and orders a vodka and tonic, I'm going to pour a half-ounce of vodka," Peters says. "The second person comes up wants a screwdriver with vodka. I'm going to pour a half an ounce of vodka. I now have a free ounce that I can give away to a friend." 

Another method involves a method of phantom accounting. Peters explained a situation where a bartender would ring a discounted sale or even push the no-sale key at a register, but put the full amount of money into the cash drawer. If the bartender was, for example, $10 over what his register tape said, he would use something around the bar -- say, a stirrer or a cherry stem, to represent the $10. As most bartenders know, at the end of the shift, many managers let bartenders run their own reports. 

"So before I do that, I now count out how many cherry stems I have, how many toothpicks, how many pennies, how many paperclips, how many rubber bands and they all represent a dollar value," Peters says. "I add that up and when I pull my charge tips I also pull the traditional cash." The way to combat this is to have managers run the reports themselves or, better, conduct a midshift cash drawer count. "If the drawer is way over in cash, then he's stealing from you," Peters says. "You can't hide from the bar drawer." 

If done often enough, word will circulate among your employees, Peters says. "It's one of those things that keep honest people honest. If you do it to your people who are honest they're not going to mind."

Five: The Purchase Order Form

Sometimes, it isn't your employees you have to watch; it's your purveyors. "Our food purveyors, while they can be very nice people and they can do a lot of wonderful things for us, there are some out there who are not the most honest people in the world when you're not looking," Peters says. 

The solution is to put in place procedures for checking in orders, Peters says. The key to checking in orders is to create a "purchase order form," something most restaurateurs don't take the time to do, Peters says. 

Peters describes the perfect purchase order form as a sheet that records how many cases or pounds of an item a restaurant ordered, what the item is, and what the unit price was. Peters also recommends adding to the form the purveyor's name, the salesperson's name, a contact phone number, who placed the order and the anticipated delivery date. He further suggests placing the clipboard on the back door, or the door most deliveries are likely to come through. 

When the product is delivered, Peters recommends that a manager check it in and record the necessary data onto the sheet. Doing so trains drivers not to skim on your account -- knowing that you are watching keeps them honest. Further, Peters recommends that managers weigh the product on a scale, making sure that they receive the amount of food they ordered and that they aren't paying for the ice it was packed in. Also, he warns managers to look underneath the top layer of boxed produce. 

"If I were to package bad product, where would I put it?" Peters asks. By the time you got to the spoiled produce, you'd be more apt to blame yourself, Peters says.

"You'd think that you just finally got to the bottom, that you didn't use them fast enough and they turned," Peters says. "Well, they were badly bruised and already moldy when you got them at your back door. These are things that restaurant owners have to pay attention to on a daily basis."

Six: Limit Access to Your Cooler

Accordingly, restaurant owners should limit access to their beer coolers when accepting beer deliveries. "You need to have processes for checking in beer," Peters says, cautioning restaurant owners to keep a close eye on the gregarious and friendly beer truck drivers who normally calculate your pars for you. 

"What they do is they show up at your back door and say 'I inventoried what you had, this is the par I say you need, I dropped off seven cases.' And they give you the invoice, have you sign off and pay for it." Often, Peters says, the driver is very personable, and that can lull you into a false sense of security when it comes to your controls. 

"Limit their access to the cooler, meaning they don't get to go into your cooler and tell you how much you had, how much they gave you, and have you sign off. No, they have to find you if they want to go in the cooler ... or they come and stack the cases of beer outside the cooler. They stack the kegs outside of the cooler; this way you can check off that those things are there."

A full keg looks exactly like an empty keg, Peters says. Make sure that deliveries are delivered outside your cooler door or restaurant for inspection. It's the only way to make sure that an unscrupulous delivery person isn't hiding empty cases or kegs behind large stacks of full ones and selling your product for cash elsewhere, or just taking it home for their next party.

Seven: Turn a Mistake Into a Win

It's happened to every restaurateur: a server rings in the wrong order -- usually the most expensive or desirable item on your menu -- and what is left to do? Typically, the server will ask if they can eat it themselves, since it was a "mistake." That's a pretty neat trick if they're being dishonest because they just received a 100 percent discount on an employee meal, and on one of your most expensive items, the kind not usually offered to employees. 

"Oh, well, we don't want the food to go to waste; sure you can have that," Peters says, imagining the mind-set of the chef in that situation. Bad move. 

"That was step No. 1 for training every one of your staff members that by making a mistake, they get to eat it." While Peters is an advocate of the employee meal -- it familiarizes staff with the offerings of the restaurant -- he is not an advocate of being taken. Nor is he an advocate of missing a chance for "four walls marketing," that is, promoting your restaurant from within. 

"Take a mistake and turn it into a win," Peters says. "Cut it up, put it in portion cups with toothpicks, and go out to the floor and market to your guests. Touch tables and say 'I'd love for you to try this special. This is our showcase item. If you've never had this, please try it; maybe the next time you're here you'd order it ... all of a sudden you're marketing, you're taking that same dollar and you're getting positive feedback."

Eight: Treat Your Inventory Like Cash

If you have too much on your shelves, it's practically an invitation for employees to go "shopping" at your expense. To save money, Peters says, you need to treat your inventory like cash. 

"You take the time to count your cash on a daily basis, you see the cash in the safe and you treat it with respect," Peters says. "Do the same thing with your inventory. You want to keep as little on your shelves as possible and keep the rest of the greenbacks in your bank where you can pay your bills." 

Peters recommends that you stock only what you need to get you through four or five days of business. "There are extra benefits from keeping cash in our bank," Peters says. "We can pay our bills." There are less obvious gains, as well. "When we have a cleaner walk-in, we have better health scores," Peters says. "But what it also allows us to do is identify theft because we can see when things are missing."

Nine: The Key Item Report

As covered earlier, today's POS systems afford restaurant owners the opportunity to really mine their data for sales statistics when programmed properly. Creating a "key item report" makes things easier to audit. 

Simply put, a key item report records the amount of an item you have to sell, and it records every sale of that particular item. For instance, if you have 10 steaks to sell, you would enter it into the POS system or onto your handwritten form. If your register indicates that you've sold eight of those steaks, there should be two left. 

"If I count one or zero, my next step is to go to the back in my kitchen line and look at the waste sheet," Peters says. He theorizes that there may be a kitchen issue with, say, a line cook burning steaks or a training issue where a server placed an erroneous double order. If that's not the case, a restaurant owner has an obvious problem with theft. "I've got a cook who has decided they deserve to eat well, I've got a cook who's decided they want to try and get a date with a server, I've got a manager who while I'm away decided that they deserve to have the best meal on the menu." 

Keeping a key item report -- even for small items like cookies -- tells your employees that you're watching. "People will pay attention to the fact that you're paying attention and they'll stop [stealing]," Peters says. "It goes back to keeping honest people honest."

Ten: Address the Problem of Shared Space

Sometimes theft is a byproduct of your restaurant's physical environment. "There's lots of restaurants out there that are so limited in space that they've got food product and beer in the same cooler, or they're so small that they've got cooks who are stocking beer and things like that," Peters says. "So any time that you've got more personnel, more of your staff going into the same space, there's a chance for liquor or in this case beer, to disappear." 

Peters says that a system, such as the perpetual inventory form outlined earlier, needs to be put in place to curb the problem. "If I'm a cook and it's the middle of summer here in Arizona, you know, I have a propensity to go get the pastrami to slice and grab a Budweiser," Peters says. "I'm going to down it in about two seconds and hide that bottle somewhere and you're not going to know." 

To combat such theft, Peters recommends restocking by the six-pack only. "If all of a sudden one of those six-packs has five in it, you have a theft problem. It's that simple."

Even Though You've Found the Culprit, Terminate With Care

What's not simple is the act of firing an employee, Peters says. Proper documentation is required when you're firing somebody by accusing them of theft. The aforementioned security camera can help bolster your case. Without such backup, Peters says, termination can be a "nightmare." (For more information, see "How to Fire Bad Employees and Avoid Potential Legal Problems".) 

Knowing employment law is a prerequisite for managerial staff. In many states, employment is offered "at will," meaning an employer (or an employee) can terminate their work situation without any liability or without offering much of a cause. Peters recommends using this situation to your advantage when you're trying to eliminate the problem of theft in your restaurant. 

"If you think someone's stealing, they probably are," Peters says. Just make sure you have the evidence to support your conclusion. 

Source: Mark Vasto, RestaurantOwner.com