Among business owners facing the highest fraud risk are restaurant owners, who are often susceptible to asset misappropriation schemes. This is where a forensic accounting expert can play an invaluable role. It involves the application of accounting and investigative skills to analyze financial data, transactions and records related to a restaurant's operations. The goal is to uncover financial irregularities and potential fraud.
Employees perpetrate the most common fraud schemes at restaurants, including various cash and inventory misappropriation schemes.
Cash misappropriation
An employee can misappropriate cash and manipulate transactions to hide the theft. However, there are also ways to protect against cash thefts in various ways.
Altered prices, discounts and voids: While some servers fail to ring in cash orders and pocket the money, others engage in price manipulation. For example, a bartender may sell expensive wine but enters a less costly wine into the restaurant's point of sale system, pocketing the difference. Regular inventory counts can aid the discovery of missing expensive wine while having extra lower cost wine inventories.
Another way employees conceal cash theft is by recording unauthorized discounts or refunds and voiding sales. To combat this, proprietors should compare the voids created by each server with the average voids for a certain period. In addition, check the timestamps on voided transactions to determine if a void occurred at the moment of the transaction, during open hours, or during the closing time, and if a certain employee is voiding transactions more frequently.
Employees also manipulate the POS system to hide theft by moving orders from one check to another. For example, customer 2 orders the same item that was already paid for by customer 1. The server moves customer 1's order to customer 2's check and pockets the cash received from the first check. Keep an eye on the average time tabs and keep track of the servers who reprint receipts often. Over a period of time, this can add up to a financial hit in the thousands of dollars.
Altered documents and fictitious vendors: Billing schemes include the creation of a fictitious vendor, where payment is directed to the employee's bank account. To counteract this scheme, make sure duties are segregated. The employee who receives inventory should refrain from processing the vendor payment. In addition, the employee processing payments should not reconcile the bank accounts.
Check tampering or check cashing is another fraud scheme that can be perpetrated by an employee or an outsider. Someone may alter the payee information and cash the check. Contact vendors frequently to verify open balances. Check your bank transactions daily and verify the endorsement on the back of checks to ensure it matches the vendor's endorsement.
Creating a ghost employee is another fraud scheme used by adding fake employees to the payroll system and pilfering their wages. Fake employees can be discovered by reviewing payroll reports regularly. Review employee files to make sure there is a file for each employee listed in the payroll register.
Inventory or cash theft
Inventory is a critical aspect of restaurant operations. Inventory can be stolen in many ways, including eating, giving free meals to family and friends, taking food home or overpouring drinks. One way to minimize this loss is to limit access to expensive items such as high-value bottles of particular alcohol.
Besides inventory theft, rogue employees can steal from the restaurant's cash register. An example might be an employee who embezzles money from the register and alters financial records to cover their tracks because they used the funds for personal expenses, luxury items, and vacations.
It is also important to conduct daily inventory counts and compare them with POS inventory reports to find and investigate discrepancies.
So, while there are many ways to prevent and minimize fraud, the most important is creating a tone at the top and developing strong internal control policies. Employees should understand the importance of integrity and the consequences of committing fraud. Employees should also be able to report suspected fraud to management and/or owners. Anonymous tips are the most helpful tool in detecting fraud.
Employers always hope that conducting an internal audit will only find minor discrepancies in financial reports. However, if (or more likely, when) they encounter fraud in their organization, they can count on professional firms to bring an accurate financial picture to light.
