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As an industry, we are facing the continuous rise of commodities that adversely affect our businesses. The rising price in grains and feed affect the price of raising cows, pigs, and chickens, and increases the price for milk, eggs and of course the meat and poultry. Efficient use of these staples in our restaurants is essential in remaining competitive in the marketplace. This translates into food cost. We can’t afford to waste the food we sell either in the inefficiencies of converting raw product into sales– or theft.

The “Usual Suspects”

When looking into high food cost we usually investigate the usual suspects:

  • Back door security
  • Inventory control
  • Proper documentation of “waste” (raw and completed)
  • Portions and yields

We start with accessibility of the back door. If not controlled, and employees have unlimited access, product can easily be stolen during trash runs, breaks, or – whenever. Effective inventory control involves a systematic approach to counting inventory and ordering properly. Improper counts leads to under or over ordering negatively affecting sales, quality of the product, and inefficient use of inventory. Not documenting raw and completed waste properly misses the mark on effective inventory control. Improper portions and yields again negatively affect either sales if they are too small or profitability if they are too large.

The Connection

We know that controlling food cost is all about controlling the inventory. We know so much about it, and focus so much on it, we may fail to include the front end of the operation as an accomplice to poor food cost. Handling the sales transaction improperly will negatively affect food cost. Very often we fail to make the connection of poor food cost performance with poor cash management. A cashier or server rings a customer transaction and the food is prepared and served to the customer. It happens hundreds of times a day. The sale is rung and the food is delivered to the table, or to a car in the drive thru, or even to a home or place of work. If the customer received their food and that cash transaction is negated by a void, price reduction, deletion, no sale, refund, coupon, promotion, under ringing, or some kind of manager override – you lost money!   Your inventory was negatively affected (food cost), and, if done fraudulently, the cashier committed theft and you may never know it!

Cash Components

A cash shortage in the register usually triggers questions. It grabs our attention. Who was operating the register and what happened to cause the shortage? If the shortage is unusual, it may be a ringing error, a fraud perpetrated by a customer, or simply unexplained. However, if the cash components such as those mentioned above are not routinely audited, it may go unnoticed if any of those categories are significantly high.   If a cashier is stealing by one of the methods above, it is easily hidden.

Dig, Drill Down, Explore, Investigate…

Run the reports on your POS system that allows you to assess cash handling. Cash handling includes performance of voids, no sales, average check, refunds, price reductions, etc. Know what acceptable limits are on those categories and investigate those that are abnormal. Look for patterns of abnormal activity and then drill down by individual cashier. When you discover abnormal or even suspicious activity, incorporate progressive disciplinary measures to change the behavior. If theft is occurring, you will quickly know.

The connection of cash management contributions to poor food cost will be made and interrupted with sound auditing and disciplinary procedures. When future issues crop up with high food cost, you will know to place another “suspect” in the lineup.

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User Comments – Give us your opinion!
  • Don Boyle
    I believe you are spot on Libby. All too often the front of the house is overlooked. While the back door certainly requires controls, the losses at the front can be much more detrimental to food costs. Those employees engaging in fraudulent activity at the POS can go undetected for months if operators are not vigilant. The ACFE reported the median duration of this type of fraud to be 18 months at a median cost of $60,000. That is huge!

    There are many tools available to owners/operators to combat this type of fraud; exception reporting, regular auditing, triggers, etc. There is no magic bullet, a comprehensive plan must be employed.

  • Sean Kaden
    Love it Libby! Awesome article. I couldn't agree more! I think you may be on to something....Wait. As far as cash componets;Does this mean the usual suspect doesn't always look the part? Doesn't she/he need a criminal record to do these cash handling thefts? Food Costs...the occasional made wrong... i'll just save it, and eat as my break food is a classic one!
  • Kenneth Fuchs
    Libby is right on. IN my over 32 years of restaurant experience I have never seen a situation where cash was in control and food cost wasn't. Using the right food cost analysis you can many times determine where the cash theft is occuring.
  • Craig Whitfield
    Libby- All very good points. I have conducted numerous investigations in which significant losses were occurring at the drive thru window while the management team was looking at waste documention issues. Small things can be done to prevent theft, or to catch the thief in process. Just random audits of the cash drawer will put the thieving employee on notice that they are being watched. The restaurant manager has a lot of his/her plate, and unfortunately Loss Prevention is a very real operational issue that must be proactively addressed. I advise all of our manager's to keep an open mind with regard to theft and dishonesty issues.
  • Jennifer Wiebe
    Definitely—whether from theft or poor order-taking and cash handling practices, many restaurant operators have no idea what they're losing at the till. Pizza Marketplace's POS research center sponsor, SpeedLine, outlines a 4-point "Security Watch" routine, with more detail on specific POS reports to audit for theft and cash management:
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Latest posts by D. B. "Libby" Libhart
D. B. "Libby" Libhart
D.B. “Libby” Libhart has more than 30 years of experience in the loss prevention industry. He has provided security and safety leadership in retail settings such as department stores, drug stores and quick-service restaurants. Before launching his own company, LossBusters, Libby served as the Senior Director of U.S. Security and Safety for McDonald’s Corp. He entered the QSR industry with Taco Bell and subsequently YUM Brands.
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