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Ask the Expert: Reduce Theft to Increase Profitability

Q: My business is busier than ever, yet my cash balance isn’t growing as I would expect it to. I’m concerned I’m out of touch with what could be happening around controls. I trust everyone, but need to dig a little deeper. Where do I start?

A: The hospitality business benefited from lower employee turnover during the Great Recession. Over the last two years, the labor pool has tightened, and turnover is getting closer to traditional levels of plus or minus 100 percent. With higher turnover, internal controls need to be tightening as the risk of fraud increases. This is an enormous topic, and I’ll touch on a slice of it – taking a fresh look at procedures and controls with your point-of-sale or POS system:

Evaluate voids. Look for patterns with voids both in number and amount. How many are there per day per person, and are voids increasing or decreasing over time? Most voids occur when product is rung incorrectly into the POS. The longer an employee has been employed, the higher the accuracy level, so you should expect to see this number trending toward zero. Ensure that every product has to be rung in order for it to be produced by the kitchen or the bar. Make sure items cannot be voided after they have been produced, and look for time stamps of when voids occur. Additionally, manager voids should be close to zero since most systems allow hourly employees to void.

Evaluate comps and promos. Limit comps and promos to authorized personnel – typically managers. Since hourly employees outnumber managers, lowering the number of people who can comp or promo reduces the opportunity and temptation for theft. Comps and promos should be completed during the guest visit, not at the end of the shift. For each comp or promo, a manager should visit the table and speak with guests about their experience, solve any issues, thank them for coming in and make sure they have a return visit.

Check the type of comps and promos the day after they occur, examining frequency and trends and spot checking tickets. Look at when they occurred. Did they happen during the guest visit or at a later time? Since managers have the ability to comp or prom, the risk of theft increases when a shift is complete and balancing the books for the day occurs. Look for small comps and promos that may help in balancing over/short for the day.

Evaluate transfers. Limit transfers to managers only. There are certain items that do not require being rung through the POS for production such as soup, iced tea and coffee. Unless the POS is set to prevent transfers of items at the hourly employee level, these items can be transferred on and off guest checks during the shift by creating another table and transferring items to and from it. For example, Table One orders coffee. The employee serves the coffee and eventually the guest check and collects from the guest. Prior to closing the check, the employee transfers the coffee to another table and changes the tip amount in the POS. This single order of coffee is transferred between tables throughout the day and is either voided or the last guest to order coffee ends up with the charge and the transfers cease. This can also be done in the bar by the bartender with any drink made in the bar since he/she produces the drink. Examine transfers closely on a daily basis and occasionally ask about the process.

The areas open to theft are limitless and those committing fraud are resourceful. Evaluate trends for each shift for the number of checks, items and dollar amounts by person that have comps, promos, voids and transfers. Be vigilant. By tightening up controls around the POS, fraud can be reduced and profitability increased.

For a more information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.

Author: MRA
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