The Three Types of Restaurant Inventory Theft You Should be Watching For

2nd December 2014
Burglar Alarm: A Flickr Creative Commons photo by Hobvias Sudoneighm

Inventory theft is a common problem at restaurants, and one that can be difficult to trace. In a retail environment, shrinkage of inventory is most often caused by theft. However, in restaurants things like food wastage, spoilage and poor portioning can also be factors. Additionally, while many restaurants are very good at tracking inventory, overall the industry does not give it the same scrutiny that Retail does.

How is inventory stolen at restaurants?

There are three main types of inventory theft at restaurants:

  • Employees stealing inventory to convert to cash.
  • Employees giving free items to friends.
  • Employees stealing inventory for their own consumption.

Stealing inventory to convert to cash

This type of theft is particularly insidious, because it often involves management. While you can generally bank on good managers deterring employee theft, when they start to steal it is hard to detect and even harder to determine who is at fault.

One type of management theft is the sale of spoiled goods. Here is a real-world example from a QSR restaurant that often had Limited Time Offers (LTO) that included plastic promotional cups. The franchise head office sent an email reminding all locations to record the remaining cups as spoiled and dispose of them. However, an enterprising restaurant manager, whose store rooms were not audited frequently, recorded the cups as spoiled, but kept some on hand to sell.

As an example, the inventory at this restaurant might initially have been:

  • Official Inventory Count: 50 cups total = 60 cups, minus the spoiled 10 promotional cups
  • Actual Inventory Count: 60 cups total = 50 generic cups + 10 promotional cups

The manager encouraged employees to use the promotional cups first, to deplete the final stock and at the end of the day they had sold them all. That night, the cashiers’ tills balanced, as all items had been rung in, but now inventory  was off.

Once the manager checked the inventory and saw the count for regular cups was over (in this example by 10 cups), they would then do a cash refund for 10 regular drinks on a till. Refunding these items “puts” 10 cups back into inventory:

  • Official Inventory Count = 50 cups: 40 remaining cups + 10 refunded cups
  • Actual Inventory Count = 50 cups: 50 generic cups + 0 promotional cups

This made the safe heavy with cash for the 10 refunded cups. The manager would then pocket that amount, which balanced the actual cash on hand with the total indicated on the back office system.

This method can be used for any type of inventory that a manager has the ability to record as spoilage, but LTO’s are one of the easiest ways to do this, as no one questions when large quantities of promotional items are disposed of.

Lessons:

  • Look for excessive or consistent spoilage of items in inventory counts.
  • Track after-hours refunds by individual managers.

Giving away inventory to friends

The hardest part of preventing instances where employees give food away to friends is actually convincing them it is wrong to do. Many people simply don’t understand that anything that is given away has a cost and that providing free or discounted food to friends is a form of theft.

There are two common ways (with many variations) that employees provide free or discounted food for friends:

  1. Using the employee, or other discount button when a friend places an order. This is difficult to detect, but fairly common. One way to track this is to use a product like LiveAnalytics to compare the volume of employee discounts that are occurring across multiple shifts or locations and look for outliers.
  2. Creating a fake transaction for show, by ringing in, then clearing an order. As an example; a cashier rings up combo, clears it and opens the till. They then take a twenty from their friend and hand back two fives and a ten as change with the food. The transaction looks real on the video surveillance and their till is still balanced. This type of theft often involves one employee serving another who is on break.

Lessons:

  • Check for irregular numbers of cleared items from cash.
  • A supervisor should be near cashiers during times when their friends are most likely to be present. For example, just after school ends.
  • A supervisor should be required to approve the usage of the employee discount button.

Stealing inventory for their own consumption

There are a number of reasons that an employee might steal inventory; they may simply not be able to afford the type of food they want to eat, they may feel they are “owed” or perhaps they just don’t internalize it as theft. All that aside, direct theft of inventory; food walking out the back door, is hard to catch because it often isn’t noticed until long after it has occurred. If an employee leaves a restaurant with a box of boneless, skinless, chicken breasts, it may be another five days before inventory is taken.

The first step (click the links for more best practices) in preventing this type of theft is having proper inventory taking practices and tracking actual and theoretical food costs. Here are a few items to consider:

  1. Explain to employees on a regular basis that your restaurant has a zero tolerance policy for inventory theft and discuss explicitly what this includes.
  2. If you allow employees to take some food home, for example prepped food that will expire overnight, require the signature of a manager or the chef in order to do so.
  3. Reduce opportunities for theft by not permitting backpacks in prep and inventory areas and keeping sealed containers (like tight lidded garbage cans) where inventory can be secreted away from staff exits.

Wrap Up

How are you preventing inventory theft at your restaurant? Get in touch with us at support@livelenz.com and let us know. Or learn more about how Livelenz helps track and trace inventory issues here.

Image Source: A Flickr Creative Commons photo by Hobvias Sudoneighm

Chief Operating Officer at LIVELENZ. Greg began working part-time in restaurants when he was 15 and continued in the industry for a decade. He then began working for technology companies developing a passion for improving operational efficiencies at fast-growing organizations.

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