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One of the hardest things operators encounter when dealing with employee theft is believing it's actually happening to them. No one wants to think his or her employees are stealing. A multi-unit chain in New York recently tracked a vendor delivery person who visited five of their stores trying to sell cases of shrimp as a "cash only" special. The chain had "lost" the shrimp due to poor receiving controls. The operator couldn't believe his long time chef was a thief until the employee admitted he stole two blocks of 16-20 shrimp a week.
"I believe that the reason why most employees steal from their restaurants is because the feel that the restaurant "owes them," says Peter Laliberte, Captain, Metropolitan Club Chicago. "If you establish a system of providing an employee meal or incentive program for the staff, including sales contests and a perfect attendance policy, then this might give the staff a sense of ownership and pride, which will provide an anti theft policy. Also if you start new staff off with an honesty policy program you can have them sign a form to promote awareness."
Liberete's comments are on point but the issue of employee theft deserves closer scrutiny. According to the most recent available data, employee theft is here to stay.
Numbing numbers
The U.S Chamber of Commerce estimates that theft by employees costs American companies $20 billion to $40 billion a year. To pay for it, it takes approximately $20 in sales to offset every $1 lost to theft which means every man and woman working in America today contributes more than $400 per year.
According to a 2005 study done by the National Restaurant Association, employee theft, be it from inadvertent mistakes, or employee unauthorized freebies to friends, averages $218 per employee each year. The average takeout and delivery pizzeria has 20 employees. The math says that's $4,360 right out of your pocket annually. Worse yet, security experts call that estimate conservative. According to the Association of Certified Fraud Examiners, occupational fraud costs the average business $4,500 per employee annually. Multiply that by the 8,553,000-plus restaurant employees in the United States and the annual loss in the restaurant industry alone exceeds $38,488,500,000.
Red Flag warnings
So whether operators want to admit it or not, employee theft happens. It's happening right now and your employees are involved. In order to combat employee theft, an operator must first identify it. A survey of security consultants and several pizzeria owners resulted in the following checklist to spot possible employee filching: Secretive conversations among employees, or excessive loitering by off duty employees, ex-employees or friends. Maybe you notice rapid checking in of some deliveries while others take much longer for no legitimate reason. Finding an employee in an area he/she has no legitimate business in, is certainly a red flag. Habitually returning to the work area after others have left to retrieve something left behind is another possible ruse. Any customer who insists that only a certain employee handle their sale is a flaming red flag. Frequent cash overages on the same employee's shift. This may indicate that an employee is stealing cash at the register but not "light ringing" sales enough to totally cover it or there might be an unusually high number of "no sale" transactions registered.
Brandon Ring, national sales manager at FKI Security Group, in New Albany, Ind. says, "A lot of theft is happening right at the register." Ring and FKI marketing director Steve Aronson recalled a clever scam discovered by surveillance cameras at one of their client's pizzerias.
"The majority of pizza sales at the operation were slices, and the owner sensed his incremental purchases weren't as high as they should be," Aronson recalled. "The owner installed a surveillance camera with a cash register interface which produces an exact replica of every receipt on the recording to track the purchases." On the tape Aronson says the owner saw the cashier ring up a whole pizza and buy it with her own money at the beginning of a shift.
"That whole pizza cost her $10, but she sold it for $20 dollars in slices and pocketed the difference," Ring explained. Even if such thefts are limited to just one pizza per day—and they typically aren't when thieves get greedy and refine their dodges—the losses add up, Aronson points out.
"Even at one pizza a day, that's $14 times 365 days a year, which is $5,110," he says. "At that rate, it doesn't take long to get a return on your investment" in a surveillance system.
Investing in a good security system is essential of course, but in conjunction with electronic surveillance, good old common sense techniques can be employed to lessen the chances of employee theft. Jeff Crawford is a hospitality consultant who recently launched RestuarantWorkshop.com, an online clearinghouse for restaurant questions and information. Crawford says simple lock and key is quicker and cheaper than security equipment.
"To solve any problems say, in the back of the house, all high cost items and those most prone to theft should be inventoried on a shift to shift basis," he advises. "Also it is helpful if these items are kept under lock and key to be issued in small quantities by a manager or trusted employee. Using this method and comparing use to sales will help better track inventory and theft.
"For the front of the house," he continues, "it is important to watch your employees closely. Are servers having cooks make food that has not been rung in? Are bartenders making drinks and not charging for them? Cooks should only be making food when there is a ticket for it or a manager approves it. Also have the bartenders keep empty bottles and do a quick inventory before and after random shifts. These are only a few suggestions that can help control costs."
Prevention through prevention
Serious pre-screening before you hire employees is critical. Screening all applicants, including doing background checks, is a starting point for controlling employee theft. You should also closely track valuables, including cash and inventory. For example, know what your average sales are by shift and watch for variances that could indicate theft. You can also use surveillance cameras and even undercover investigators if you suspect theft is occurring. There are also common sense controls, including frequent cash deposits, dual signatures on big checks, and book balancing. Another tip: Set up separate accounting and check writing functions between employees and owners, and have your businesses bank statements sent to your home. You may also want to consider adding theft insurance to your business insurance plan. If you suspect theft, contact your lawyer immediately.
The best prevention is well, prevention. In order to head off employee theft, BEFORE it happens, a consensus of operators recommends the following:
Put one employee in charge of setting up cash drawers. Have another double-check the cash count. Make each employee responsible for his/her own cash drawer. Issue one cash drawer per on-duty employee. No other employee should at any time (during lunch, breaks, etc.) be allowed to open or use another's cash drawer. At the end of each shift each cash drawer should be balanced by the employee and double-checked by another.
Many operators employ video cameras trained on the cash drawer or office. The camera doesn't lie, but there are some points to keep in mind when you undertake to surveil your employees.
"Just installing cameras sends a strong message," says a Georgia pizzeria owner who asked that his name not be used. "The cameras will make employees think twice but they need to know you check the tape and even ask for their feedback. Get the employees involved in feedback, positive or negative, of their job performance. That'll keep ‘em on their toes."
Future Shock
There are technological aids in the fight against employee theft, some of them with Big Brotherish overtones. There are for example, telephone systems that will record all incoming calls and "analyze" them for potential problems. One such system is CallWise, developed by Jacent Technology in Santa Clara, Calif. The CallWise system records and saves every call coming into the system for the past 30 days, and automatically highlights problem calls allowing employers to discover any questionable employee actions. The company says the system provides extensive analytics and reports regularly on any troublesome, or even illegal, activities. Many systems like CallWise continually report calls versus orders, making it easy to identify a problem if orders suddenly drop to say, 50 percent when they normally should be at 85. Another operator-friendly feature on many phone systems is they can match each phone order to what was actually entered into the POS system and report any discrepancies. A representative of one major chain is sold on this new technology.
"The reporting we found through our telephone – POS system identified some unexpected underperformance at one of our stores," said Tricia Morrison, field auditor for Pizza Hut of Maryland, a 48-unit franchisee. "After further investigation, we were able to confirm that it was related to employee theft and we were able to take immediate corrective action to fix the situation."
Just the Facts
After an operator gets over the "emotional" impact of his employees stealing from him, a two-prong plan can be implemented to lower losses due to such theft. The two prongs would be electronic surveillance combined with common sense accounting techniques and inventory that is kept under lock and key. Once you have strong suspicions, or even video proof of employee theft, consult a lawyer. The judicial process is fraught with peril and one needs a lawyer to successfully navigate its infested waters. Employee theft can only be as successful as operators allow conditions for it to happen. With so many obstacles outside in the marketplace, no one should have to lose to an enemy inside their own store.