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Preventing Losses In The Hotel Sector Through Fraud And Staff Error

JodyP 25 November 2019
Preventing Losses In The Hotel Sector Through Fraud And Staff Error

According to current statistics from YouGov, hospitality staff turnover is at a record 30%, double the UK average. This has resulted in a greater risk than other industries of leaving teams inadequately short staffed and trained to handle takings or indeed falling victim to fraud and theft. Couple this with the fact restaurants, bars and cafés are particularly reliant upon cash takings and the risk of loss on the shop floor is considerable. So how come nobody wants to talk about it in hospitality? Here, Malcolm Muir, Consultancy Director at Venners, explains how a few simple tweaks to procedures can have a significant impact on an operator’s bottom line, whilst also stopping profits being diverted away from the till.

It’s not a case of if a hospitality business will incur financial loss due to error or theft, it’s when. At Venners, we’ve completed thousands of observation audits, which note the details of around 100 rounds of drink sales on each occasion. Losses occurred in 100% of hospitality sites. The losses were 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 caused by general fraud. This can include food and drink consumed by staff on duty – not forgetting that many operators rightly allow teams to help themselves during the course of a shift, however too 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 also 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.

Who is most at risk?

We’ve found wherever opportunities arise through flaws in procedures, theft will be swift to follow. For example, nightclubs provide an environment ripe for theft and error, due to the fast pace of the environment, lively guests and dark corners. 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 can operators do?

Here are 10 simple steps operators can take to minimise risks:

  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 receipts. Simply asking staff to ensure 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’re 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 amongst themselves to learn what to look out for. There might be something – or indeed someone they weren’t aware of as 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, however, it’s a way of building loyalty and trust, which in turn could reduce theft, whilst increasing the likelihood of a whistle-blower calling time on fraudulent activity.
  10. Operators should consider a regular external audit. A third-party review brings experience from multiple industries and types of business and doesn’t skirt issues that might “drop a friend in it”. Using an outsider removes personalities from the business and the tendency for internal reviewers to presume “he would never do that” or “she always checks that”. Presumptions can be wrong. It is impossible to know every staff member’s personal circumstances and pressures can cause people to act out of character.

What happens when 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 also 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.

Case-study 1

One client asked Venners to audit three central London bars. Not because they suspected staff were acting maliciously but to prove to a doubting head office accountant that they weren’t. Venners conducted observation audits at the three sites over two nights. By the end of the week, of the eight staff who had been serving at the bars, seven had left the business.

Our audit identified that the employees removed 20% of the takings over the bar in a single evening. They achieved this by under-ringing the till as part of an agreement between them, with the cash shared at the end of the night. They also deployed their vast experience of bar work to create stock surplus by manipulating the service of post mix and cocktails to hide the cash they were extracting.

Case-study 2

An operator had an extremely busy bar but consistently poor results. The bar was so busy, the on-site management said they didn’t know where to look for the cause. Venners began by looking at the till information without the site staff’s awareness. This review highlighted unusual transactions by the manager himself. Late at night, he corrected orders off the till and refunded them to cash or his own credit card.

Having trusted the manager implicitly for 10 years, the operator was reluctant to accept the evidence. However, when the manager was challenged with the evidence, he admitted stealing tens of thousands of pounds over 18 months after falling into gambling debts and addiction. This highlights the importance of removing the personal relationship from the equation and allowing an external review to take place – ensuring no preconceptions of the site or the staff. It also underpins the idea that operators cannot fully know what is taking place in the life of each individual team member and to be open to the possibility that all is not always what it seems, however uncomfortable that might feel.

For more information, please visit  https://www.venners.com/observational-audits/