When It's Not "On The House"
Employee theft in
the food service & restaurant industry
Security Management - March 1, 1990
Revised March 1, 2007
Michael
Sherer
The scene: a chi-chi Manhattan restaurant frequented by celebrities. A recently hired bartender's assistant watches suspiciously as the bartender puts money from a customer in the cash register drawer without ringing the sale. Later, when the bartender hands the shift's receipts to the owner, the assistant tells what he saw. The pilfered cash is found in the register, and the bartender is fired. NBC's "Tattinger's"
Though no one likes to talk about the problem, the statistics are staggering. The US Department of Commerce estimates that employees stole money, goods, and property valued at $90 billion in 2005, 10 times the total lost to street crime - and the figure increases 15 percent every year.
The profile of the thieves themselves makes the inside job an even more frightening problem for food service operators. Employees who have worked two years or less commit two thirds of all thefts. Young employees, aged 16 to 22, commit 67 percent of thefts. The food service industry's constant need for relatively inexpensive, unskilled labor is a magnet for employees matching this description.
"Some jobs attract people who believe they can enrich themselves through theft," says Ryan Kuhn, president of Reid Psychological Systems, a Chicago-based marketer of employee attitude surveys. Jobs where employees have ready access to cash or merchandise, such as those in food service, are more likely to attract thieves. In large-scale, anonymous surveys, for example, the company has found that about 26 percent of manufacturing employees admit to stealing, but the number admitting to theft in retail establishments rises to nearly 42 percent.
"Employee theft is a constant problem in the restaurant business," says James Walls, cofounder of Stanton Corporation in Charlotte, NC, another paper-and-pencil test marketer, "partly because employees tend to be so transient. It's hard to do background checks. The business also has traditionally lacked good controls."
According to the National Restaurant Association (NRA), employee theft accounts for four cents of every food service dollar, meaning operators expected to lose about $18.6 billion in revenues in 2004. Four cents represents four percent of sales, but 25-75 percent of profits! That figure is far more conservative than the 15 percent the Commerce Department estimates is added to the cost of retail goods by employee theft. About 75 percent of inventory shortages can be directly attributed to employee theft, according to the NRA. Operator profits are literally walking out the back door or being eaten up.
"Employees say to themselves, 'It won't hurt the restaurant, and $100 will help me big time'," says Jeff Ruby, owner of The Waterfront in Covington, KY. "It's an ongoing game of strategy. Every time you put a policy, procedure, or system in place, some employees try to figure out a way to beat it. "
The Waterfront has been plagued with theft, Ruby says, and just when management figures out how one employee is stealing, another employee finds a different way to profit from lax controls or a weak link in the system. Ruby's problems have ranged from a broiler cook selling expensive strip steaks to employees for $3 a piece to a cashier who skimmed nearly $800 in cash from the register when the power went out one night.
Sometimes the problem becomes so pervasive that operators shrug their shoulders in helplessness. Bill Hannan, administrator of nutrition services at Jackson Memorial Hospital in Miami, says employees there have been on staff so long that they're in collusion not only with each other but also with vendors.
"We have a large operation, with nearly $4 million in food going through annually," Hannan says. "Because theft is a problem throughout the hospital, we have a preventive security department, but they can't catch it all. We've had trucks deliver only half of what we ordered. The other half was split between the receiving clerk and the driver and sold on the street. A neighborhood citizen called in to tell us what was going on. We learned that the ringleader was stealing to support his drug habit. "
Surveillance teams and spotters on receiving docks have not been much help, Hannan says, because there is too much camaraderie among employees and drivers. The employees know when they're being watched. Hannan's problems are aggravated because the hospital is a union shop, making it more difficult to fire dishonest employees without conclusive proof of guilt.
EMPLOYEES ARE OFTEN AS CREATIVE as they are daring when it comes to theft, according to the manager of a chain unit in Indianapolis. In one incident, a discrepancy in liquor costs led to the discovery that an employee was stealing two bottles of liquor a night. Every day, the employee came to work wearing cowboy boots, then changed into work shoes. At the end of his shift, he hid the bottles in his cowboy boots, then stashed them in a duffel bag. In another case, a cook took chicken breast fillets and steaks off the line, put them in plastic bags, and stuffed them inside his uniform.
More and more operations are using sophisticated, computerized, point-of-sale (POS) registers to control when and how food is issued from the kitchen, and to keep track of inventory and food costs. But many operators warn that hopes of reducing employee theft should not be pinned to computer technology. For computer-wise employees, in fact, new systems can open the way to new varieties of theft. Management still needs to keep on its toes.
Many young employees are not only resourceful when it comes to theft, but also computer-literate, making manual backup methods imperative to ensure the accuracy of computer systems. A determined thief can find a way to outwit a computer, whether through sophisticated technique or simple sabotage.
Voided checks or items on a check are one easy way for staff members to steal. Many POS systems have a lockout feature that prevents anyone but managers from using the void key, but some employees find a way to outwit the lockout feature.
"We had one waiter who would routinely spill soda on one of the POS terminals, causing it to go down, " says Ruby. Once the terminal was down, the waiter was free to void items on manually written checks, skimming extra money from his customers until the terminal came back on-line or was repaired.
There are probably more ways to steal from an operation than management can imagine. "Recognize that every item in a restaurant can be of some use to someone," says John Buchanan, managing partner of Lettuce Entertain You Enterprises in Chicago.
"You can't control or diminish a dishonest employee's need to steal, " agrees Ruby, "but you can lessen the opportunity."
Operators with the least amount of internal theft generally have tightest control of their operations. "You can't pay people the wages we do, tempt them with lax systems, and expect them not to steal," says Art White, assistant to the vice chancellor at North Carolina State University in Raleigh, NC. "The first commandment of food service should be: Thou shalt not tempt."
With 130 full-time food service employees and as many as 600 part-time employees during busy times, White says he can't take chances. Storerooms in all areas are kept locked and many have automatic alarms. Once food is issued from a storeroom, it becomes part of food cost, and flash reports are issued weekly to flag food-cost problems. "We let employees know that we will conduct surprise audits and unannounced cash register counts, " White says, "and we tell students to be sure that employees ring up sales and give them a receipt."
"We take inventory daily, " says the Indianapolis chain unit manager, "and conduct a weekly accounting in all cost areas. " Supplies needed for a shift are pulled under supervision.
Keeping inventory under close surveillance also helps pinpoint a problem, whether it is theft of inventory or cash. "We've substantially reduced our inventory," says Doris Melzarek, manager of food services at 3M Company in St. Paul, MN. "We don't order any more than we need. "This not only makes it easier to monitor inventory, but missing inventory is more easily noticed." Taking a frequent physical count of inventory also can help point out where a problem lies. If physical inventory matches and is accounted for in an operation, then there may be a cash problem, and reviewing register tapes may reveal the cause of a revenue leak. Proper inventory control begins before products even enter the back door. "We check deliveries to be sure weights are proper and that what we're getting is what we paid for," says Dean Vlahos, owner of Champ's, a sports bar in Richfield, MN. Ordering and receiving duties also should be separated. If one person is doing both, the inventory can easily be padded for personal gain.
Voided checks must be examined carefully, even when using a computerized POS system. "Check voids in our operation are cross-checked against inventory at the end of the night; referenced as an error, a customer complaint, or as a promotion; and must be signed by the managers," says the Indianapolis manager.
Limiting employee access to and egress from a facility can lessen the amount of inventory that walks out the door. In some restaurants, employees must enter and leave through the front door, past both customers and managers. Others have only one exit for employees, and managers let them out at night or after a shift.
Random checks also discourage employee theft. "We physically watch to see that employees aren't walking out with things in bags," White says. Announcing the fact that duffel bags and purses will be checked at the end of a shift often puts an end to incidents without revealing the identity of a thief, according to some managers.
Cash handling procedures should be reviewed, too. As protection against both internal theft and robbery, Domino's Pizza in Ann Arbor, MI, has instituted a number of safeguards, including drop boxes for drivers, drop safes in the units, limited access to cash registers, and a policy of not letting drivers leave the store with more than $20.
"We also have an internal security group to train personnel on security and safety," says company spokesperson Kerry McNuity. "Most are former police officers who can establish a rapport with local law enforcement and serve as a liaison with the community. "
ON DEVELOPING HONESTY TESTS, we've found three key factors that determine why employees steal and what they take: need, opportunity, and personality dimensions," says Dennis Joy, director of security and productivity testing at London House in Park Ridge, IL. People who are inclined to theft, he says, spend a lot of time figuring out ways to beat the system without getting caught.
"But employees often don't perceive themselves as dishonest, " he says. "By seeing themselves as honest people in a dishonest world, they give themselves a rationale for their activity. High-risk personalities tend to blame organizations for their behavior, not themselves. "
Employees use the excuse that everybody is doing it" to rationalize their own dishonest behavior. In an anonymous survey of employees at two fast-food companies, researchers at London House found that 6 percent admitted taking money, 22 percent admitted taking equipment or merchandise, and 23 percent took supplies for personal use. But 52 percent believed that other employees were taking between $10 and $100 in money, food, or supplies each week.
If determined thieves can sabotage even the most sophisticated systems, what hope do operators have? Internal controls and security measures can never completely eliminate the opportunity for theft. The operator's best weapon against internal theft is the employees themselves. And management must set the tone.
As the first step in this endeavor, an operation should give employees a written policy on theft, spelling out guidelines and penalties. Stealing is stealing, whether it is a piece of pie eaten on the sly or money skimmed from the register each night.
Sometimes theft is difficult to prove, and employers are reluctant to risk lawsuits for falsely accusing employees. "Obviously, we wouldn't charge an employee with theft unless we could absolutely prove it, " White says. "But if we catch a cashier not ringing sales, for example, we will discharge that person based on poor performance. We spend a lot of time letting employees know that we will not tolerate theft. "If a restaurant can prove beyond a doubt that an employee is on the take, he or she should be prosecuted-not only as a matter of justice, but to show other employees that theft will bring retribution."
"We hold daily staff meetings to discuss problems and ideas, " says the Indianapolis chain unit manager. "If we've had incidents of theft, we make a big deal of it, so employees will know to watch out for it. You have to put it into perspective for the employees. If someone will steal steaks, then that person is just as likely to steal money from another employee's purse or wallet. The employees appreciate all of our safeguards. It makes them feel that they work in a safe environment. "
"We had the usual problems of employee theft, " says Gordon Heiss of La Casa Sena in Santa Fe, NM, despite the fact that the restaurant employs fairly rigorous security measures, including a POS system, locks on all walk-ins and storerooms, and a closed-circuit television camera on the back door. "Now we have employees turning in cash found on the locker-room floor. "
Operators can clean house, even when employee theft seems so pervasive that they despair of ever running an honest business. They must be committed, however, to their own policies and systems. "If the problem is really pervasive", says Stanton Corporation's Walls, "employers should implement a post-employment attitude test to find out who's potentially dishonest, and who's not. Then management should interview employees whose attitudes reflect dissatisfaction with dishonest activities that may be occurring. Get their feedback and ideas. "
Once the operation has used the survey to narrow down the list of suspect employees, and internal systems have been checked to see where theft could be occurring, management should bring in an investigative firm to prove guilt, Walls suggests. Document the dishonest activities, fire dishonest or poorly performing employees, and hire thoroughly screened employees in their places. While few operators like the idea of employing spies, they often are used as a last resort. "Since our controls are pretty tight, usually we only have a cash problem when there's been a change in staff," says the Indianapolis unit manager. "If we suspect a cash problem, occasionally we'll bring in a spotter to watch an employee."
While operators may differ in their handling of theft-related problems, the constants among those who have a low incidence of internal crime are tight controls and unflinching intolerance of dishonesty. "That doesn't mean you should be paranoid," says Lettuce's Buchanan, "but don't be naive, either."
Managers cannot be just good guys or bad guys. They almost have to be parental figures, policing their operations, but listening to and understanding their employees as well. "We have to be psychologists as well as police," according to the unit manager in Indianapolis. "If employees are having personal problems, I'd much rather they come to me and try to work them out than steal. " "If you help your employees, your employees will help your restaurant," Vlahos agrees. "I've even put some of my people through drug-rehab programs in the past few years. "
All believe, however, that the same courtesies should not be extended to dishonest employees. Creating a corporate culture where honesty is fostered means unfailing discipline of dishonest employees. The bottom line is that operators' businesses are at stake. Unchecked, the inside job can easily cause a business to fail. The operator who doesn't take steps to put preventive systems and procedures in place may well be next year's statistic.
About the Author . . . Michael Sherer, owner and operator of Sherer Communications, is a public relations and marketing consultant. He writes for a number of food and food service trade journals. Sherer is a former restaurant manager and a member of the International Foodservice Editorial Council.
Creating a Positive Work Environment