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When it's not "on the house." (employee theft in the food service & restaurant industry)(includes related information)

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"

INFORTUNATELY, WHAT SHOULD BE SIMply an evening's entertainment in front of the television is a sad fact of real life. Employee theft could cost American business as much as $300 billion a year.

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 $50 billion in 1988, 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 $8.6 billion in revenues in 1989. 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 apiece 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. (See accompanying box.)

"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.

"An environment conducive to theft, " says Kuhn, " is one where there is a failure to listen to employees and implement their ideas, and a failure to reward effort and ideas." Employees who would otherwise never consider stealing might have second thoughts in the wrong environment. "There's strong motivation when employees feel mistreated, when they feel that management itself is dishonest, or when they see that dishonesty goes unpunished," says Walls.

"My honest employees have been forced to quit," agrees Ruby, "because they wouldn't participate. They would rather leave than be called snitches. And some employees who are exemplary in other ways have admitted to stealing. "

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 penalities. 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. "

"Open communication is one of the best ways to deter theft," agrees Melzarek. "We treat our employees with respect, and we expect the same in return." Meizarek's staff of 175 serves 6,500 meals daily in 15 cafeterias and four executive dining rooms. All are 3M employees. "They talk to each other when they see something irregular happening. They keep each other honest. " Minor incidents are documented and made part of an employee's evaluation. Fortunately, says Melzarek, major forms of punishment, such as dismissal or prosecution, have never had to be used. "The fact is, employees really run your business, " says Vlahos. "My employees have made a lot of money for me, and I treat them with a lot of respect." But he, too, lets his employees know that dishonesty is taboo.

HIRING AND KEEPING HONEST EMployees is important to the health Hand morale of an operation. Until recently, many operations used polygraph tests to screen applicants and maintain the integrity of their employees. But the Employee Polygraph Protection Act, passed by Congress in late December of 1988, sounded what many believe was the death knell for so-called lie detector tests. Polygraphs, voice stress analyzers, and related truth detection equipment can no longer be used for preemployment screening.

Employers can still use polygraph tests to investigate specific incidents of theft, but the new law limits even this use. Employers must have a reasonable suspicion that a worker was involved in the incident and must give the employee advance notice of the time, place, and line of questioning involved in the test.

As an alternative, more employers are turning to employee-attitude surveys, a pencil-and-paper honesty test. A few are experimenting with graphology, or handwriting analysis. Unlike polygraphs, which test an employee's admission to past or present dishonest activity, these instruments help predict an employee's future behavior.

"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. "

Heiss attributes the honest environment, in part, to applicant screening with attitude surveys. The restaurant also does an attitude survey annually to reveal employees' attitudes towards management, use of drugs, job satisfaction, and other factors. The review identifies potential problems and helps management improve systems.

"We have all the inventory control systems and locks in place. " says John Hawes, a human resources director with Gilbert-Robinson in Kansas City, MO. "The employee attitude survey was a piece of the puzzle that we felt was missing. "

Gilbert-Robinson uses the tests primarily for employees who are applying for positions that involve handling cash and goods: receiving workers, bartenders, cashiers, and managers. The company's director of loss prevention also conducts manager training sessions on security issues in Kansas City.

"The attitude survey gives us confidence in an employee's overall character, not just integrity, " Hawes says. But employers should not base hiring decisions solely on honesty tests. Most operators say that checking references thoroughly is an indispensable step in screening applicants. Applicants also should be interviewed by more than one person, so that managers can compare notes, catch any discrepancies in the applicant's job history, and get a feel for how well the employee will work out in his or her operation.

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."

"We have an outside agency come in twice a week to audit our entire system," Vlahos says. "They rate us on everything, from the friendliness of our reservations person to ambiance, cleanliness, staff appearance and knowledge, and speed of service. We let the employee know this is going on. We're trying to keep the restaurant on its toes, not catch anyone in the act. But they'll spot a problem if it exists."

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 a 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

RYAN KUHN, PRESIDENT OF REID Psychological Systems in Chicago, outlines these nine guidelines to establishing a positive internal culture:

* Select honest employees by using an effective preemployment screening system.

* Make employees feel they are part of a team. Encourage their contributions and ideas with incentives, awards, regular performance reviews, and active listening.

* Develop a manager's code of ethics, drafted by the managers themselves.

* Write antitheft policies and communicate them often to employees.

* Use attitude surveys to identify disgruntled employees and to find out whether employees think their work environment is honest.

* Establish timely and accurate internal controls, including inventories and smart cash handling practices.

* Develop a grievance system that provides due process and treats all employees fairly.

* Reward employees with cash bounties and recognition for reducing theft. Profit sharing gives employees a stake in maintaining the profitability of the operation.

* Recognize and reward excellent performance.

Screening Applicants

USE AS MANY OF THESE SCREENing techniques as possible, and standardize them for all applicants, particularly for the same job category; otherwise, discrimination suits could result.

* Job application form: Read carefully. Red flags include a lack of professional references, fictitious addresses, conflicting dates of employment, unexplained reasons for leaving jobs, lack of a signature, or skipped portions of the application.

* Attitude survey: Designed to evaluate a prospect's integrity, this pencil-and-paper test can be administered before or after the first interview.

* Initial interview: Ask candidates probing questions about their backgrounds and goals.

* References: Check thoroughly. Although many employers are reluctant for fear of opening themselves up to legal action, questions about the prospect's strengths and weaknesses may elicit an opinion.

* Second interview: Have another manager conduct the second interview, to confirm the initial interviewer's perceptions of the applicant's abilities, motivation, sense of responsibility, and initiative.

Security at No Cost THESE SIMPLE PROCEDURES TO tighten internal security require only an investment of time and commitment:

* Lock all storage areas and limit access to keys. Only managers should have masters or submasters. Give employees keys to specific storage areas only when something is needed or require that they be accompanied by a supervisor.

* Put away inventory when it arrives and do not allow vendors to deliver at peak hours. * Know what you use and hold unscheduled inventories frequently. * Reduce your inventory, keeping on hand only what you need in the near future. Any inventory that disappears will be more noticeable. * Limit employee access to the premises. Watch employees on the way out at night by standing near the door and saying goodnight. * Do regular checks of employees' packages and bags.

Are You at Risk?

IF A REVIEW OF THE SECURITY checklists in this article suggests that your operation may be vulnerable to internal crime, take action.

The Educational Foundation of the National Restaurant Association offers a security management course as part of its self-development series. Called "Protecting Restaurant Profits: Managing Security," the course is based on a text developed by Steve Miller, associate professor in Boston University's Hotel and Food Administration Program.

The course of study is organized into four lessons: screening and hiring, warning signs of dishonesty, and explanations of why employees steal; types of internal theft and theft control techniques; good communication procedures, including effective questioning of suspects; and external restaurant security risks and prevention. More information is available from The Educational Foundation of the National Restaurant Association, 250 South Wacker Drive, Suite 1400, Chicago, IL 60606; 800/522-7578.

Cash-Handling Tips

CASH IS MORE TEMPTING TO A POtential thief than almost anything. As with inventory, the tighter the controls, the less opportunity there is for thievery.

* Carefully compare cash taken in to product inventories and sales for that day.

* Limit the number of employees handling cash.

* Conduct unannounced register audits.

* Use drop safes, and clear registers after each shift.

* Make cash deposits daily and use different managers to make them.

* Change locks and safe nations on a regular basis.

Loss of $120,000 Teaches Gladstone's to Avoid the Void Scam

THE COST OF SELLS INCHED UP from the usual 37 percent to 40 percent over a three-month period. It was management's first clue that something was seriously wrong at Gladstone's, a 490-seat restaurant. "We thought we were dealing with a back-of-the-house situation, " says Robert Morris, president of Mor Food 'N Fun in Santa Monica, CA.

Off-duty Los Angeles police officers scanned the loading dock with nightscopes to make sure employees were not operating a wholesale food market at the back door. " Deliveries were double-checked, surprise inventories became a part of the routine, and employees were accompanied when emptying garbage. Managers scrutinized procedures for signs of excessive waste and longrange cameras brought every corner of the kitchen into sharp focus, 24 hours a day.

Finally, Michael Cunningham, vice president of operations, noticed an abnormally high number of voids. He traced the cause to a ring of 15 servers who were systematically defrauding the restaurant by collecting cash from guests, voiding some of the items on the point-of-sale computer system, and walking away with the difference.

Although only managers were authorized to void checks, the ringleader had discovered that he could memorize the code on a manager's security key when it was in view. After requesting and receiving a security key from the computer company, he punched out all the holes with a heated paper clip, then used moistened bread to fill in all but the holes corresponding to the manager's code.

As servers noticed what was going on, they were brought into the ring and the key manufacturing method was repeated until nearly every manager's security key had been duplicated. By the time the scam was discovered, the group had taken Gladstone's for a total of 120,000$48,000 of which bad gone into the ringleader's pocket.

Morris was outraged by the breach of trust. "Our policy is that if you're hungry, we'll give you food. If you steal, you go to jail, " he says. Laboriously, managers worked back through the records, identifying suspect checks and documenting fraudulent voids. The most heavily involved waiters were prosecuted and convicted, and several did time in jail. Others were dismissed in return for cooperating in the case. All are making full restitution.

In the wake of the scam, Gladstone's more rigorous security precautions include requiring managers to produce void reports each day. But Morris thinks computer-related theft will always be a threat: "The kids who work for us were raised with computers. They're quick to see the weaknesses in any system and the ones who aren't honest will exploit them."
COPYRIGHT 1990 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Sherer, Michael
Publication:Security Management
Date:Mar 1, 1990
Previous Article:Banking on security's future.
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