Even Steven, Trading Sales for Tips

It’s 7:30 pm on a busy Friday night and all tables are occupied. In the foyer more parties eagerly await those tables and it’s standing room only at the bar: all indications for a great sales night in the making.

In addition to the many servers handling the floor, Steven is tending the bar which has a mix of patrons: those having a drink while they wait for their table, those who stopped by for a quick drink on their way home, and those jolly folks who enjoy the camaraderie of having their meal while seated at the bar. One such couple on this Friday is Seth and Joanna Newsome who come in a couple of times each month. They love to make an evening of it, and they each begin with a specialty cocktail before ordering appetizers to share. Seth orders another round of cocktails from Steven as they engage in easy banter with other diners sitting adjacent to them. Soon they move on to ordering their entrees, a seafood dish for him and a red meat dish for her. They order a glass of white and a glass of red wine respectively to enjoy with their meals. A second glass of wine for each is ordered as they near the end of their entrees. After a brief respite, the Newsome’s order two coffees, and one dessert to share while they wait for their Lyft. A most enjoyable evening is nearing its end and Joanna asks Steven for the check. The check total with tax is $210.60 and Joanna proffers her AmEx card. When the pre-processed slips are presented to them, Joanna puts a line through the tip entry as Seth prefers to leave cash for tip, and she fills in the total with $210.60. Seth generously adds $70 cash for the tip, and they leave the slips and cash on the bar as they run out the door to their waiting ride.

The next day Joanna checks her AmEx card which she does every Saturday morning, and she sees her card was charged correctly $210.60 for the prior night out. All seems copacetic, right? Not so! In this story, tip manipulation did indeed occur.

After Seth and Joanna Newsome left the restaurant, Steven picked up the check receipts and cash off the bar, he put the cash in his pocket, and at the POS he went to work modifying the Newsome’s check. He removed the four specialty cocktails ($48), four glasses of wine ($48) and two cups of coffee ($5) for a total of $101 removed from the check. The new check total was then $94 plus $7.52 tax for a total of $101.52. The tip amount which you’ll remember was originally crossed out by Joanna on the credit card slip is now entered into the POS by Steven for $109.08, for a credit card total of $210.60. Instead of the generous $70 tip left by Seth Newsome, Steven has now added an additional $109.08 to his tip for that order, trading off sales to do so. In this restaurant, credit card tips are paid through payroll so Steven doesn’t have to remove any cash from the register tonight to get the tip money he took fraudulently, it will be there in his next paycheck.

As if the impact to sales is not enough, the $101 in product was consumed increasing the food cost to sales ratio. In this restaurant they track inventory and will incur shrink for those consumed items that were removed. Also, it’s unlikely this is the first time Steven has manipulated sales to benefit his tips. Internal fraud escalates in dollars and frequency as it’s left unchecked exposing this restaurant to increasing losses in sales and growing shrink as he gets comfy with this type of fraud.

Finally, if the customer’s credit card company had a tip recognition algorithm alerting them to high tip percentages, this customer would be alerted to a 116% tip left on their card. Even though they weren’t the direct victim, they would likely realize there was fraudulent activity using their card, and it may change where they choose to dine. Losing this customer who comes in twice a month and spends $200 each time and the likelihood they will tell friends and family about it, is far more damaging and long lasting than the incident itself.

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