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Restaurants lose more from internal theft at the hands of employees than from guests and other external sources. Proactive steps may not be able to stop it altogether but they can minimize the damage.

He described himself to police as a modern-day Robin Hood, an IHOP server who worked at a Brooklyn, N.Y. location of the family-dining chain. He was robbing from the restaurant, serving free beverages to select customers.

“I am not stealing,” he told investigators earlier this year. “I am serving the ones in need. I take from the rich and give to the poor.”

A POS system helped track the misguided Robin Hood. The IHOP franchise owner noticed that his beverage sales were low relative to other working the same shifts—6% of total sales versus 20%. He began video surveillance and soon had evidence.

Charges of grand larceny, criminal possession of stolen property and petit larceny were filed. The perp remained unapologetic. “What’s the big deal? I’ve been doing this since I started here,” he was quoted as saying to police.

Theft by employees is a large and troubling problem in restaurants, the pathway paved by near-endless opportunity. While there are no current data for restaurants specifically (the National Restaurant Association last reported on it in 2004), the retail sector under which restaurants fall sees 7% of annual revenue lost to theft or fraud, with nearly 43% of that attributable to employee sales retail theft. Shoplifting, widely viewed as a bigger threat, accounts for just 35.6% of lost revenue, according to a study by Checkpoint Systems.

In both front- and back-of-house, restaurant workers have free access to food and equipment, and a nearly endless roster of methods to implement devious plans. Cash transactions are reported to be the largest source of leakage, with dollars easily diverted from the cash till to back pockets via such ploys as voids, no sales and bogus coupons. Free menu items for friends, a purloined bottle of wine or printing cartridges, time-card fraud or cases of meat walking out the back door are among other common scenarios.

“It’s a problem for a lot of businesses,” agrees Kristina Buchthal Regal, an associate attorney for Lavelle Law, Ltd. in Palatine, Ill. In terms of handing it, she advises that the best course of action is for restaurant operators to act before it happens. “Prevention is the best thing a business owner can do,” she says, adding that systems often are already in place to track routine transactions. “If you give a manager a credit card for incidentals, monitor that statement every month. Pay attention to the POS system and know what could be going out the door. Some restaurants actually lock up the large bottles of pure vanilla extract—they can cost more than $100.”

Theft is hardly confined to hourly workers. Checkpoint’s data show that 37% of retail theft is committed by a manager. Says Regal, “Even people you trust have to be scrutinized.” And if you discover criminal activity, she strongly advises immediate escalation. “Refer it to the police. If you don’t stop them, people will strike again, emboldened by their success to do a little more, make it a little bigger.”

Lance Ziebell, also an attorney at Lavelle Law, Ltd., similarly suggests a proactive approach that starts with restaurants clearly and unequivocally telling employees how they handle theft and fraud. “As a general procedure, have an employee handbook that spells out exactly what can lead to termination,” he says. “If there is no guidance they might feel they can get away with giving away a drink to friends.”

Built on a foundation of guest hospitality, it’s not uncommon for restaurants to express that tenet by comping a round of drinks or sending free desserts to regulars. That simple gesture, borne of goodwill, can be misread by employees who may come to think it is entirely their discretion when to give away free food or drinks. “Have clear, written guidelines around everything” says Ziebell.

Proactive Steps

It’s much better to prevent theft rather than deal with its aftermath. Here are steps every operator should take to minimize opportunities for internal stealing.

  • Create and foster a positive culture. Although this may sound like simplistic cheerleading, workers in an upbeat environment in which they feel valued are less likely to steal.
  • Communicate a clear and consistent policy on what constitutes theft and on the repercussions should it be uncovered. This information should be part of all new-employee orientation, with periodic reminders for everyone.
  • Install video surveillance. Coverage should be thorough in vulnerable areas of the restaurant such as the bar, back door, POS system and storerooms.
  • Regularly review POS data to see if any irregularities are revealed. Also limit access to POS systems and ensure that a manager is required to override transactions.
  • Keep close tabs on inventory. Check-in all food deliveries from suppliers and then record it as received. Limit access to storage areas and lock up food, liquor and equipment that is most costly or likely to be pilfered.
  • Cash transactions are highly vulnerable. Have well-established and carefully monitored policies for handling them.