Most restaurants are finally reopening to in-person dining. And while you may now be thinking about luring customers back, hiring enough workers and managing supply-chain shortages, one issue has remained the same: fraud. Restaurants often face fraud threats from employees, customers and vendors. So now isn’t the time to drop your guard.
Potential risks
Your restaurant may have high transaction volumes but lack the technology linking point-of-sale, inventory and accounting systems. This leaves gaps for fraudsters to exploit. Employees could, for example, provide food and drinks to friends without entering the sales — or ring up only a portion of friends’ bills. They might issue voids or refunds when there was no original sale and pocket the proceeds. Or they could overcharge customers by, say, charging for premium beverages but serving cheaper alternatives.
Although it’s less common, intangible property theft is another risk. Your restaurant may use proprietary recipes and confidential marketing plans to compete in the dog-eat-dog world of food service. If a departing employee takes such secrets to a rival, it could threaten your restaurant’s survival.
Watch bookkeepers and vendors
Owners often employ bookkeepers to manage back-office operations but may neglect to give proper oversight. Such an environment provides criminals — or even ordinary people experiencing unusual financial pressures — with opportunities to cook the books. In one frequently seen scheme, the bookkeeper creates a fake vendor account, submits and approves fraudulent invoices, then directs payments to a bank account he or she controls.
Even when bookkeepers are honest, the invoices they process may not be. It can be hard for managers to keep track of the daily stream of food, beverage and supply deliveries. Vendors might exploit such chaos by inflating their bills to reflect more or pricier items than they actually delivered. When vendors collude with restaurant employees, particularly receiving or accounting staff, theft can exact a heavy financial toll.
Multipronged approach to prevention
Successfully combatting restaurant fraud takes a multipronged approach. For example, if you haven’t already, integrate your accounting, inventory and sales systems. And to manage potential occupational fraud, conduct background checks on new hires, install video surveillance throughout your restaurant and know how to spot red flags. For example, keep your eye on servers who are always flush with cash or purchasing managers with unusually cozy relationships with vendors.
If you don’t have one, set up a confidential fraud reporting hotline. Also engage a CPA to review your financial records at least once a year for discrepancies. Contact us for assistance. We can investigate fraud suspicions or simply go over your operations for potential fraud gaps that can be closed with better internal controls.
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We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.
