Account Information

Controlling Employee Theft

By Dan Bergs, CPA
(reprinted with the permission of Dan Bergs, CPA – this article first appeared in the ‘On Premise’ (Tavern League of Wisconsin) magazine (March/April 2017 issue)

Internal theft is a major problem many bars and restaurants face.   In the bar and restaurant industry, loss prevention is very important for a company’s ability to stay in business and stay profitable.  This is especially true since employee theft is the largest indicator of loss.

There are many ways in which employees steal from a company.  Some of the more common instances of theft that bars and restaurants experience include staff giving away free food and drinks for themselves and customers, stealing supplies such as kitchenware, and pocketing cash by not entering sales or voiding tickets.
Also another common problem for bars are bartenders who serve top-shelf liquor but only charge for rail drinks.  Although each instance of fraud may seem like small dollar amounts, when multiple employees commit these acts of fraud over long periods of time, the costs add up and can have a major impact on business.

MOTIVATORS FOR THEFT

So what leads to employee fraud?  The three main reasons include pressure or incentive, opportunity, and rationalization.  Employees often feel pressure financially, have ample opportunity with direct access to both cash and inventory, and are able to justify their actions, oftentimes based on their performance, pay, or treatment at work.  According to a 2015 Statistic Brain Research Institute study, it took a business on average two years before detecting fraud that was occurring.
Let’s look at what impact employee theft could have on your business.  If your employees are giving away 10 drinks per night at a cost of $3.50 per drink, what impact do you think this would have on your bottom line?  Assuming you are open six days a week, the impact on your bar and restaurant adds up quickly.  The total impact would be $10,920 ($3.50 per drink x 10 drinks per night x 6 days open/week x 52 weeks in a year).

STAY ALERT AND HAVE A PLAN

So what are some ways that restaurants and bars can prevent or reduce the occurrence of employee theft?  First, be skeptical.  Many people don’t want to believe that the people they work with could be stealing, especially when they have good relationships with those people, but it is important to be on the lookout and to remember that there are no specific demographics of those who commit theft within companies.  Pay attention to your food and liquor costs.  Are they slowly becoming higher than previous periods or increasing all of a sudden?  Are your profit margins decreasing while your sales remain fairly consistent?  These are very important things to be on the lookout for.

You must also have a plan.  Educate your staff on ways theft is committed, detected and how much it can truly cost the company and then put into practice a theft prevention program.  Some fairly common practices include installing cameras; randomly closing out a till partway through an employee’s shift; setting up manager passwords to ring in discounts; counting inventory often and comparing your actual inventory to your reports; and locking up certain inventory that can commonly go missing, such as liquor bottles, and limiting access to it.

Let employees know the consequences if they get caught stealing and follow through with it if someone does get caught.  This will provide an example to other employees, and will often prevent others from committing the same crime.  Finally, reward employees who work hard and do a good job.  If your employees feel respected and appreciated they are less likely to steal from you.  Having good morale in the workplace goes a long way.  Putting procedures in place to ensure that employee theft is reduced or eliminated can greatly improve your bottom line.

Dan Bergs, CPA is a supervisor in the Tax & Business Services Department with Wegner CPAs, LLP. Wegner CPAs LLP has offices in Madison, Baraboo, Waukesha and Janesville.  This article is not intended to give complete tax advice, but a general review of the subject matter.  You can contact Dan at #608-442-1986 or This email address is being protected from spambots. You need JavaScript enabled to view it..