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Mr. Goldmann

Security & Safety

Hotel Security: Food & Beverage Fraud and Loss Prevention

By Peter Goldmann, President, FraudAware Hospitality

For a hotel food and beverage operation generating, say, $1 million a year in revenue, that 5% or $50,000 represents a significant loss. For large chains, the math can easily produce some fairly staggering loss figures.

The major reasons for this high rate of fraud loss include:

Moreover, liquor bottles, lobster tails, steaks and other high-value items are easily concealed and misappropriated by dishonest employees.

According to Derk Boss, Vice President of Surveillance at the Stratosphere Casino Hotel in Las Vegas, "The key to deterring and detecting food and beverage theft is effective implementation of controls, policies and procedures... and routine monitoring by department management to make sure that employees are adhering to required practices."

Common Frauds in Hotel Bars

With this backdrop of easy employee access to food and liquor inventory, combined with the all-too-common lack of tight anti-fraud controls, it is easy to see why the following bartender frauds are draining liquor profits in most hotel lounges:

These are just a few of the seemingly limitless varieties of fraud that hotel bars everywhere are vulnerable to.

Mitigating the Risk

Though time-consuming, regular monthly two-person inventory counts of liquor inventory are among the most effective ways to screen for fraud.

According to David Bleser, Vice President for Operations at Hospitality Safeguards, Inc in Orlando, FL, "If such monitoring reveals a sudden, significant increase in the monthly bar cost percentage, you've got good reason to suspect one or more of the many different bartender scams. Hiring a mystery shopper or beefing up surveillance can reveal the illegal activity."

Equally important, though, is that conducting regular inventory checks acts as a strong deterrent to employees. When they know that usage is being inventoried on a regular basis, bartenders are often less likely to risk getting caught.

Void Vulnerabilities

Another essential control for day-to-day liquor loss prevention is requiring all voids to be approved by a supervisor or manager. To cut down on the various void-related scams that bartenders perpetrate, this control should be strictly enforced. Unless a supervisor is in collusion with a bartender, this will significantly reduce many of the fraudulent sales that otherwise might be made at the bar.

Here are additional policy measures that can substantially reduce food and beverage frauds related to voids:

Important: At the accounting level, if monthly analyses of liquor profit margins suddenly drop, this is a potential indicator of excessive voiding, theft of cash or other employee schemes.

Food Fraud at the Front of the House

Food and beverage schemes occur either at the front of the house, or in the kitchen, store rooms, or warehouses, also known as "back of the house".

Here are several common ways in which servers or cashiers commit front-of-the-house food fraud:

Scenario: A hotel restaurant runs a promotional ad in the local newspaper with a 15% discount coupon for lunch.

A customer pays cash for her meal but does not have a coupon. The server gives the check and the customer's cash to the cashier. The cashier who has been waiting for this opportunity, uses a coupon he has clipped from the newspaper, attaches it to the guest check and pockets the 15% difference.

Scenario: "Comp" fraud. Multiple servers in a casino coffee shop stole cash by switching underused comp slips with separate high-dollar guest checks that had been paid in cash when settling the guest checks. They then applied the cash payments to the smaller (comp) check and pocketed the difference.

Preventive strategy: The best way to prevent this type of fraud is to pre-number comp slips and require restaurant hostesses to write the comp slip number on the guest check and the check number on the comp slip and then staple the two together. Unless the hostess is dishonest, it will be hard for servers to get away with this form of comp fraud.

Here are several other common server scams that hotel food and beverage managers must be tuned into:

Reselling Orders

Another all-too-common front-of-the-house food scam occurs like this:

The result: The order got filled twice, but the restaurant got paid only once. The server held on to the cash from the first sale. This scheme is especially common at hotels offering breakfast buffets.

Mitigating the Risk

To detect food and beverage fraud, it is imperative that management monitor computer generated reports and exception reports in order to identify suspicious activities.

Variance reports should be monitored on a daily basis in order to detect anomalies in the cash handling of the cashiers. Any significant variance should be investigated for possible fraud.

Food Fraud: Back of the House

Theft of, or fraud involving food inventory occurs in innumerable ways. A few common examples:

Mitigating the Risk

Unusual patterns in the cost-of-sales numbers for food should be immediately investigated. If a pattern of fraud or theft is found, such as unusual meat and/or seafood inventory numbers, etc., management should determine why existing fraud control procedures are not being followed. If control procedures are well-designed and tough to break, investigations will be infrequent. Such controls should include, at the minimum:

One final note of caution: If a food or liquor vendor is permitted direct access to the food and beverage storage areas, have one or two employees escort the vendor and verify the vendor delivery prior to storage.

Peter Goldmann is the Developer of FraudAware/Hospitality, the first on-line fraud awareness training course for hospitality managers, supervisors and line employees. He is is the publisher of the monthly newsletters, White-Collar Crime Fighter and Cyber-Crime Fighter. His company, White-Collar Crime 101 LLC also is the developer of FraudAware/Hospitality, a customizable Web-based fraud awareness training course for managers, supervisors and line employees. He is a member of the Association of Certified Fraud Examiners, and The International Association of Financial Crimes Investigators. Mr. Goldmann can be contacted at 203-431-7657 or pgoldmann@wccfighter.com Extended Bio...

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