Preventing Internal Theft

To the uninitiated, the term “shrinkage” may sound harmless, but just the thought of it is enough to make seasoned beverage managers wince and bar owners shudder. It refers to product that is lost due to waste, spillage and theft. Shrinkage is capable of chewing up in excess of 20% to 30% of the bottom line. The average shrinkage in North America is 23% for liquor and draft beer, about 10% on wine and 2% on bottled beer.

For many operators, eliminating shrinkage means the difference between financial success and failure. Theft alone is an insidious source of losses. Opportunities are rife for theft behind a bar. Bartenders are often working without direct supervision. They steal from the bar and its customers because it’s easily accomplished, hard to detect, and extremely difficult to prevent on an ongoing basis. The temptations posed by constantly handling large sums of cash and dealing with a liquid inventory can often prove overwhelming. At some point, most bartenders contemplate stealing cash, giving out free drinks, or any one of a multitude of transgressions.

Effectively limiting internal theft behind the majority of bars is no easy task, and eliminating it altogether is unrealistic. Regardless of the difficulty factor involved, you must formulate and implement an operational strategy for containing the problem.

THEFT REDUCTION POLICIES & PROCEDURES

It is important to understand that management policies and procedures by themselves will not stop bartenders from stealing. On the contrary, policies and procedures are only effective if they are strictly enforced. In addition, they must be consistently and uniformly applied to all members of the bartending staff. Presuming that the bartenders are operating in strict compliance with the establishment’s set directives invites larceny and financial strangulation.

Not all of the following suggestions regarding policies and procedures will conform to every beverage operation’s exact circumstances. An establishment’s set directives must be tailored to its own particular needs and requirements.

• BARTENDERS PROHIBITED FROM CHECKING-OUT THEIR CASH DRAWERS — In many operations, bartenders are required to reconcile their cash drawers. This entails using the cash in the drawer to compile the bar’s opening bank for the following shift and to itemize the remaining cash proceeds onto a deposit slip. If the bartenders are stealing, the checkout process provides them with an ideal opportunity to safely take out any stolen funds secretly deposited into the register’s cash drawer during the course of their shift.

By taking this responsibility away from the employees, management will effectively make it more difficult and riskier for bartenders to withdraw stolen proceeds from the cash register or POS. The bartenders will, as a result, be forced to either pull the money out of the cash drawer during the shift or opt not to use the register as a place for their stolen funds.

• EMPLOYEES NOT ALLOWED TO DRINK AT THE BAR — While this policy may result in the bar having a few less customers, it will also prevent the bartenders from overpouring, undercharging, or simply giving away free drinks to their co-workers. This is a sound preventative measure, intended to reduce the natural temptation bartenders face when they are put in the position of serving alcoholic beverages to people they work with. In addition, it eliminates the possibility of the establishment’s personnel becoming intoxicated at their place of employment.

• BARTENDERS NOT ALLOWED TO PARTICIPATE IN THE PHYSICAL INVENTORY PROCESS — The process of taking the bar’s physical inventory is solely a management function and should therefore be conducted only by management. Bartenders who are stealing from an operation can use their participation in the physical inventory process to alter the recorded data such that it offsets previous theft. This could be accomplished by overstating the amount of liquor inventory on hand at the end of the month. Overstating the amount of liquor on-hand during the physical inventory process will essentially have the same effect as if the theft never occurred.

• BARTENDERS NOT INVOLVED IN ORDERING, RECEIVING OR ISSUING OF LIQUOR — The ordering, receiving, issuing, and storage of the establishment’s liquor inventory should remain the sole responsibility of management. There is no legitimate reason for the bartending staff to be involved in any of these managerial functions. An unscrupulous bartender could cause immense operational difficulties by altering the establishment’s internal inventory systems for illegitimate purposes.

• LOCKED AND SECURE INVENTORY — All of the operation’s liquor, beer and wine inventory should be stored in a locked and secure area. It is a sound policy to limit access to the liquor room to management only.

• PERPETUAL INVENTORY SYSTEM — The perpetual inventory system tracks the changes in the liquor rooms inventory. You can continually monitor against internal theft by comparing the last entry on a product’s perpetual inventory sheet with the actual number of bottles on-hand in the liquor room. The more inventory you store in the liquor room, the more reasons you have to implement a perpetual system.

• BARTENDERS REQUIRED TO TAKE POST-SHIFT PAR READINGS — The operation’s bar par sheets will detail precisely how many bottles of each product in the liquor inventory should be behind the bar at any one point in time. The bartending staff should be required to take a bar par reading at the conclusion of the night shift. The closing bar par must take into account the bottles emptied during the course of the shift. The bar par reading will conclusively reveal if all of the products in the liquor inventory are actually behind the bar in their prescribed quantities. If there is a discrepancy in the bar par reading, it must be investigated immediately, for it may indicate that a full bottle of liquor was stolen from the bar.

• “COMP” SHEET ENTRIES REQUIRE MANAGERIAL APPROVAL — Bartenders should receive management approval prior to preparing the customer’s complimentary drink. This policy is intended to stop them from claiming, after the fact, that a drink was given away with management’s consent, when in reality the drink was sold and the proceeds of the sale were pocketed.

• TIP JAR PROCEDURES — The bartenders’ tip jar should be situated well away from the operation’s cash register or POS. If the tip jar is located right next to the register, it is far too easy for bartenders to divert stolen funds away from the register and into the tip jar. In addition, bartenders should be prohibited from making change out of their tip jar or taking currency from the tip jar and exchanging it for larger denominations out of the cash drawer. If the bartenders are stealing from the business and using the cash drawer for the stolen funds, they can easily retrieve the money from the register under the pretense of making change. For example, a bartender could take 20 one-dollar bills out of the tip jar, deposit the currency into the register, but instead of taking out a $20 bill in exchange, he or she could remove four $20 bills, withdrawing $60 of stolen funds.

• MANAGER-ON-DUTY TO INITIAL ALL EMPLOYEE TIME CARDS — It should be policy that the manager-on-duty must initial all employee time cards when they clock out at the end of their shift. This practice is designed to discourage employee theft through time clock fraud.

• STRICTLY ENFORCED “NO SALE” POLICY — One of the more uncomplicated methods of theft involves a bartender selling a drink and depositing the proceeds into the register using the “no sale” feature. Unless someone is watching the LCD display, the act usually goes unnoticed. Since the sale wasn’t rung into the register, the bartender need only remove the stolen proceeds from the cash drawer when safe to do so. The best preventative measure against this type of theft is to restrict the use of the “no sale” key.

One technique to deterring theft through use of the “no sale” key is to provide the bartenders with an alternative source for making change. A small, inexpensive container, or even a cabinet drawer will suffice. By providing a separate source for making change behind the bar, the bartenders will no longer have a legitimate reason for accessing the cash drawer with the “no sale” key every time someone needs change. This will make it slightly more challenging to steal unrecorded sales and depositing the funds in the cash drawer without entering any sales data.

• CASH DRAWER COUNT VERIFICATION — Bartenders should be required to verify the amount of money used to comprise the bar register’s opening bank. This practice will prevent the bartenders from claiming that their opening bank was either over or under the prescribed dollar amount to explain a cash shortage or overage in the register.

On a periodic basis, place an extra $10 bill in the bartender’s bank and see if the person informs you of the cash overage. It is a good way to verify if the bartender is counting his bank prior to the shift, as well as providing insight into the person’s degree of integrity.

• POS OR CASH REGISTER PROCEDURES — The cash drawer should always remain closed between transactions. Allowing the drawer to remain ajar will completely negate the primary control function of the register. While bartenders should have access to the key that turns the register on, they should not have access to the keys that activate the “x” or “z” reading function. The LCD display should face the public such that anyone seated at the bar can observe what is being entered into the system. The area around the POS or register should remain clear of clutter, such as books, manuals, or stacks of paper. Clutter can be used to hide money, used drink tickets or a ledger system for keeping track of how much stolen money has been deposited in the drawer.

• SAFEGUARD ALL POS PASSWORDS — Ensure that all management passwords are kept safe and secure from the bartenders. This will prevent bartenders from being able to open reports and learn what their shift sales are.

• CASH HANDLING PROCEDURES — Requiring bartenders to “fan” out a patron’s change will make it much more difficult for them to short change customers. Bartenders should be required to tell the patron the price of the drink and verbally confirm the amount of money tendered (“That will be $2.50 out of $5.00”). This policy makes it more difficult for the bartenders to defraud the clientele through overcharging or shortchanging. Bartender should also “fan” a customer’s change such that the person can at a glance confirm that the correct amount was returned.

• TAKE AN IMMEDIATE “Z” READING AFTER “LAST CALL” — At the conclusion of “last call” the manager-on-duty should immediately take the “z” reading of the register or run a sales report of the POS and pull the cash drawer out of the machine. If the bartenders are stealing and using the cash register drawer for stolen funds, this procedure will force them to withdraw the money during the shift while there are still people milling about instead of the relative privacy of closing.

INTERNAL OPERATING PROCEDURES

• BARTENDERS NOT ALLOWED TO “TAIL” MEASUREMENTS — “Tailing” is the practice of letting a bottle continue to pour after the true measure has been reached. Tailing is often used deliberately overpour the liquor portion used in a drink and should be prohibited.

• NO OVERPOURING OR UNDERPOURING LIQUOR PORTIONS ALLOWED — Bartenders should be expressly forbidden from purposely overpouring or underpouring the liquor portion in a customer’s drink. Likewise, bartenders should be directed not to “top-pour” liquor or “ghost” the alcoholic portion in a blended drink. Both of these techniques are used by bartenders to steal by underpouring the alcohol in a series of drinks.

• STANDARDIZED DRINK RECIPES — Provide the bartending staff with a comprehensive set of standardized drink recipes. It is absolutely fundamental in the pursuit of consistency of product and controlling the beverage operation’s liquor costs. It should be a matter of policy that bartenders are required to pour only the drink recipes provided by management. This directive will, for the most part, prevent bartenders from overpouring the alcoholic portion in drinks.

• DRINK TABS SECURED BY MAJOR CREDIT CARD — If a customer wants to run a drink tab, the bartender should first obtain a major credit card from the customer as a type of security deposit. This practice will ensure that the establishment will receive payment in the event the customer walks out without first clearing his or her tab.

Another reason to institute this policy is to prevent the bartender and customer from working together to defraud the establishment. This could be accomplished by the bartender claiming that the patron left without clearing his or her tab, when in fact, the person gave the bartender a sizable cash gratuity to let him or her leave without paying the tab amount.

THEFT PREVENTION THROUGH PROACTIVE MANAGEMENT

There are dynamic measures management can use in addition to the aforementioned policies and procedures to curb employee theft. One of the elements in the strategy is increasing management’s presence in the bar. Direct observation is the best method of preventing bartenders from stealing and no one is in a better position to observe than the manager-on-duty. If an individual is trained to spot specific improprieties and is well versed in the operation’s prices, policies and procedures, he or she will be ideally situated to monitor the bartenders’ conduct while on-duty.

One costly misconception many managers possess is that the bar is somehow the bartenders’ private domain and any managerial encroachment into their inner sanctum is intrusive and operationally disruptive. The fact that the bar facility itself often provides bartenders with the privacy and sanctuary necessary to steal warrants that you need to occasionally intrude into that space. From such a vantage point, it is far easier for a manager-on-duty to detect evidence of internal theft.

When bartenders steal, they need to keep track of exactly how much money they have stashed in the register’s drawer. If a bartender makes a mistake, the cash count and the register reading will not balance and it becomes incriminating.

Anything that could possibly be used as a record keeping system should immediately be suspect. Items such as coins, matches, sword picks, or any small, object could be used as a token. Tokens are used like poker chips to keep a tally of the amount of money the register’s drawer is over. Some bartenders use a written ledger that they keep in their pocket or in a drawer. Anything closely resembling a counting scheme should be immediately investigated.

Other telltale signs of internal theft include an unusual number of “no sale” rings in an evening and the tip jar being inexplicably stuffed to capacity. Another clue would be the cash drawer not being normally maintained. Segregated monies might be hastily deposited proceeds of theft.

More than likely, the manager-on-duty’s presence in and around the bar will have an impact on limiting internal theft. Having a manager hovering about the bar will undoubtedly act as a deterrent. The material in this section of the chapter details numerous specific steps which management can use to exert greater control over the actions of the bartending staff and thereby lessen the beverage operation’s vulnerability to internal theft.

• MID-SHIFT “Z” READINGS — If a bartender is suspected of stealing and using the POS or register’s cash drawer as a place for stolen funds, the manager on duty can either confirm or deny those suspicions by taking a mid-shift “z” reading. At some point in the shift, the manager should clear the register by taking a “z” reading or run a sales report on the POS and replace the cash drawer with a new bank. If the bartender has deposited unaccounted for funds into the register for safe keeping, the cash drawer count will be “over” when compared to the cash register’s sales totals.

One important element of the strategy is to periodically conduct two mid-shift readings during the course of a night. This will prevent you from being predictable. The bartenders will never be certain which nights you’ll take two readings, making it riskier to use the cash drawer for stolen proceeds.

• VIDEO CAMERAS — An effective preventive measure is to install remote video cameras to monitor the activities behind the bar. Tremendous technological advancements have made these video surveillance systems both more cost-effective and more effective. There are systems that will show you four different views on the screen simultaneously.

• SPOTTING SERVICES — Another option available to management is to enlist the services of a spotting service to scrutinize the operation. Spotters are essentially detectives who, armed with the operation’s prices, policies and procedures, will sit at the bar observing the legitimacy of the bartenders’ activities.

PREVENTING INTERNAL THEFT
Watch Your Back...
By Robert Plotkin