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How to... prevent loss through fraud and staff error

19 December 2019
How to... prevent loss through fraud and staff error

A few tweaks can have a significant impact on an operator's bottom line and stop profits being diverted from the till, says Malcolm Muir

It's not a case of if a hospitality business will incur financial loss due to error or theft, it's when. In our experience through observation audits, losses occur in 100% of hospitality sites.

The losses are due to a number of factors, including mistakes, poor revenue capture and theft. Indeed, over the last 12 months, we've already observed more than 10,000 drink transactions. Our findings uncovered significant revenue loss, with 39% attributable to theft but almost half (46%) caused by human error.

The most frequent type of loss is general fraud. This includes food and drink consumed by staff on duty – not forgetting that many operators rightly allow teams to help themselves during a shift. However, often amounts are not specified, which results in staff naturally taking more than the policy intended.

Similarly, drinks and staff discounts can easily be passed to friends and family. Customer promotions can be more of a hindrance than help, frequently causing server error and leading to lost profits. If operators don't adequately explain offers to staff, the misuse of promotions can mean the exercise backfires on the till.

Nightclubs provide an environment ripe for theft and error, but, perhaps surprisingly, the hotel lounge service is just as susceptible. We found the table service provided in lounges often means staff ring in orders away from guests and prying eyes.

What if a problem is suspected?

If an operator suspects they've become a victim of staff fraud or mistakes, they can use their business data to check for suspicious activity. Who has the most "No Sale" records?

This can often indicate a member of staff with a high error rate and operators should then ensure that extra training is provided.

External assessors can be brought in to check a suspicious situation. An outsider will turn a fresh eye on the business, conduct an impartial review and identify risk factors in procedures that have become commonplace. Operators might also consider changing shift patterns or re-assigning tasks to highlight anomalies.

Malcolm Muir is a consultancy director at Venners

Steps operators can take to minimise risk

1 Training is paramount to avoid server error. This should also apply when someone takes a leave of absence. A thorough handover should be undertaken to ensure nothing is missed.

2 Don't rely on checking receipts. Simply asking staff to ensure that receipts are produced doesn't always stop theft. Some members of staff don't always print receipts and not every customer wants a piece of paper every time they are served.

3 Is the till visible to customers? This is an easy check to make. We have seen many instances of fraud occurring when a till display is broken, turned away from the customer or obscured by menus.

4 Operators need to start talking among themselves to learn what to look out for. There might be someone that they previously weren't aware of who is a serial fraudster.

5 Managers should talk to teams. Staff need to be made aware when poor results occur and to understand that theft affects the whole business.

6 Accurate records are important. Every till action, payment and shortage should be recorded.

7 Check procedures regularly. Operators should carry out site visits at odd times. Sunday afternoons can see large losses, attributable to a lack of management on-site and higher numbers of off-duty staff, resulting in families taking advantage of discounts.

8 On the supplier side, operators should conduct random spot checks to scrutinise deliveries more closely. Staff will always say they check each delivery on arrival, but in practice, this is not the case.

9 Show care for your staff by keeping them happy and motivated. This may not seem like an obvious way to curb losses, but it's a way of building loyalty and trust which in turn could reduce theft while increasing the likelihood of a whistle-blower calling time on fraudulent activity.

10 Operators should consider a regular audit. A third-party review brings experience from multiple industries and types of business and doesn't skirt issues where a "friend might be dropped in it".

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