Recognizing and Preventing Employee Fraud

Employee theft and fraud are on the rise nationwide—not just in isolated locations. To help you stay ahead of potential issues, we’ve compiled key prevention tips that can help reduce the risk of theft before it occurs.

Theft Opportunity: Petty Cash

Petty cash—used for small, day-to-day expenses—can become an easy target for theft. Employees may pocket small amounts without submitting expense reports or receipts.

Prevention Tips: Limit Access and Require Documentation

1. Limit the number of employees with access to petty cash.
2. Maintain a detailed ledger of all petty cash transactions.
3. Require receipts for every purchase, no matter how small.
4. Conduct regular audits of the petty cash fund.
5. Avoid open access—provide designated spending limits instead.
6. Require supervisor or general manager approval for all petty cash use.
7. Have staff from a different location conduct random petty cash audits.

By tightening access and insisting on thorough documentation, you reduce the temptation and opportunity for petty cash misuse.

Fraud Opportunity: Ghost Employees and Ghost Hours

Ghost employees aren’t spooky—they’re fake. A manager may create a non-existent employee in the payroll system, assign hours, and then cash out the pay themselves—often through a pay card.

Prevention Tips: Monitor Payroll Activity

1. Do not allow employee checks to be cashed from the store’s cash drawer.
2. Use a third party or back-office team to input all new hires.
3. Regularly compare schedules with actual hours worked. Look for red flags like:
   • Employees being paid without being scheduled
   • Employees paid for more hours than scheduled
4. Only allow non-store personnel to set up pay cards.
5. Watch for manager/employee collusion (e.g., inflated hours shared for kickbacks).
6. Make surprise visits and verify schedules with other employees.

Theft Opportunity: Missing Inventory

Inventory loss is a growing concern. It’s not just about cash—missing product affects your bottom line too.

Prevention Tips: Don’t Rely Solely on Technology

1. Conduct regular manual inventory counts.
2. Rotate managers periodically to conduct inventory checks.
3. Count high-value items more frequently.
4. Store high-value items in secure, visible locations.
5. Immediately verify and shelve deliveries; install cameras at delivery entry points.
6. Place cameras in all inventory storage areas.

Theft Opportunity: Transaction Manipulation

Whether it’s rewards programs, discounts, or refunds, there are many ways employees can misuse the point-of-sale system.

Prevention Tips: Monitor Transactions

1. Install cameras at registers, kiosks, and behind the counter.
2. Ensure rewards points go to customers—not employee accounts.
3. Closely monitor credit card refunds for abuse.
4. Regularly review employee meal transactions:
   • Check if discounts are being given to friends/family.
   • Investigate unusually high rewards usage for potential fraud.

Fraud Opportunity: Back Office Mismanagement

Even trusted back-office staff can misuse their access to sensitive business operations and financials.

Prevention Tips: Strengthen Oversight in the Back Office

1. Vet all vendors—review invoices for legitimacy.
2. Regularly review deposit activity for signs of diversion.
3. Be aware of favoritism—ensure staff aren’t covering for others in the restaurants.
4. Separate cash-handling duties—no one person should control the entire process.
5. Rotate responsibilities to prevent long-term cover-ups.
6. Don’t allow one-person full control over bank and credit communications.

Final Thoughts

Employee fraud can damage businesses of all sizes—but it’s preventable. By implementing strong internal controls, routinely auditing financial activity, and fostering a culture of accountability and integrity, you can reduce risk and protect your assets.

Awareness is your first line of defense. Stay proactive, stay vigilant.