Caught on tape

March 16, 2004

Think your employees would never steal from you?

Think again.

According to a 1999 study done by the National Restaurant Association, employee theft averages $218 per person each year.

The average takeout and delivery pizzeria has 20 employees. The math says that's $4,360 right out of your pocket annually.

Worse yet, security experts call that estimate conservative. According to the Association of Certified Fraud Examiners, occupational fraud costs the average business $4,500 per employee annually.

"Multiply that by the 8,553,000-plus restaurant employees in the United States and the annual loss in the restaurant industry alone exceeds $38,488,500,000," said Denise Bayless, promotions director and sales manager for Freedom Systems Midwest, an Oak Park, Mich., maker of digital surveillance systems. "The total national loss to occupational fraud is over $400 billion, and the restaurant industry claims over 9.5 percent of the total."

But you're employees are different; they're honest, hard working and trustworthy, right? Meantime, your food cost oscillates without rhyme or reason, and based on sales, you should have at least one more case of wings in the freezer than you do.

Are you a few wings short of a party pack, or is your inventory simply flying out the back door hidden in hot bags and trash cans?

The good news is you're probably not losing your mind. The bad news is, however, you are losing profits

Sellers of video surveillance systems say operators used to buy their products to protect against thieves who might rob the store. Now ops want the cameras to catch the crooks within.

"As a trend, robbery has gone down in the retail sector, but basically those crooks are working

What's Important

Video surveillance systems have proven successful in reducing losses through employee theft and faulty worker's compensation claims.

Due to tight competition, the cost of these systems has dropped dramatically while their features have improved equally so.

CAVEAT EMPTOR: Be sure the company you buy a system from is reputable and stable and guarantees its service. If buying a digital system, consider those whose recorders are self contained and not dependent on an "in house" desktop computer. The added load on the computer's hard drive could cause it to fail and result in lost operational data.

for you now instead of coming in from the outside," said Brandon Ring, national sales manager at FKI Security Group, in New Albany, Ind. "A lot of theft is happening right at the register."

Ring and FKI marketing director Steve Aronson recalled a clever scam discovered by a surveillance camera at one of their client's pizzerias. The majority of pizza sales at the operation were slices, and the owner sensed his incremental purchases weren't as high as they should be. Suspecting a swindle underway at the front counter, the owner installed a surveillance camera with a cash register interface (which produces an exact replica of every receipt on the surveillance recording) to track the purchases (click here for an FKI Web demo).

"On the recording they saw the cashier ring up a whole pizza and buy it with her own money at the beginning of a shift," Ring said. "That whole pizza cost her $10, but she sold it for $20 dollars in slices and pocketed the difference."

Even if such thefts limited to just one pizza per day—and they typically aren't when thieves get greedy and refine their dodges—the losses add up, Aronson said.

"Even at one pizza a day, that's $14 times 365 days a year, which is $5,110," he said. "At that rate, it doesn't take long to get a return on your investment" in a surveillance system.

Let's go to the tape ...

Michael Piscitelli, president and CEO of VSAM, Inc., said many restaurants already have surveillance systems installed. Most of those systems, however, use VHS recorders, and few operators ever make time to watch their tapes.

Piscitelli's Tampa, Fla., staff does the watching for them for about $130 a week.

"What we've found out is that those operators' employees know they never watch the tapes," he said. "But we watch every transaction from open to close, and we catch a lot of people doing a lot of different things."

Piscitelli said most of his clients' systems use cash register interfaces (click here for a Vsam Web demo), which his employees are trained to examine closely on the tape. Questionable transactions are noted, and the data is delivered back to operators for hands-on scrutiny.

Piscitelli also recommends audiotape surveillance. One of his clients, who runs an adult bookstore, added the feature when Vsam monitors noticed cash register workers regularly stepped out of the camera's view to speak with customers. The audiotapes produced a record of employee-customer side deals, and the employees were fired.

Digital surveillance systems (which use digital video recorders [DVR] to store data on a hard drive) allow operators to watch their shops in real time and wherever phone lines or Internet access is available. Not only does the view allow operators to act as remote managers and make staffing decisions for busy or slow stores, it lets them keep an eye on who's doing what and when.

Unlike VHS recordings, digital recordings allow the operator to access the precise moment in the day or the exact transaction they'd like to examine, without having to view lengthy tapes.

"You look at a register tape and you notice a whole bunch of cheese pizzas rung up in a row, or you see too many voids," said Freedom Systems' Bayless. "If you suspect something's going on, you can go right to that nanosecond on the recording and see what pizzas were actually being made. And if you want, you can download that part and burn it right onto a CD. There's

An overhead view through a digital camera of the cash register and cashier at a pizza store. Image courtesy of FKI Security Group.

no need to go through a whole tape to see that."

Bayless said operators have used video surveillance to deny worker's compensation claims as well. "You've got a guy who says he fell at work and now you're responsible for it. But then you go to the video and find he and another guy were horsing around and giving each other piggyback rides when one of them slipped. All you do then is download the video and show it to him."

Pizza operator-turned consultant Jim Moran said employee behavior in general can go downhill when the boss is away. That doesn't always mean they're stealing the store, but it can mean a negative customer experience.

"It's not just the keeping the employees from stealing, it's stopping the smoking or drinking or doing drugs in the store that sometimes goes on," he said. "It's also good for preventing employees from having friends coming to the store and hanging out when they're closing."

High-tech digital systems available today didn't exist when Moran was in operations, but he still understood the value of a surveillance system—even one that didn't work. Hoping to deter potential burglars from robbing his store (he had been robbed previously at another store), he mounted two non-working video cameras to the ceiling. When suspicious-looking characters entered the store, he often saw them glance at the camera. And if they didn't see the camera, "I might look at them and then throw it a glance."

Worth the cost?

Were he still in operations, Moran said he'd install a digital system with remote monitoring "in a heartbeat." As a former area manager, not only would he like the multi-store management capabilities, he knows that competition in the video surveillance market has made prices affordable.

The average lease cost for a four-camera Freedom System package, Bayless said, is $150 a month. Since FKI sells its products directly to security system installers, Aronson wasn't able to quote a realistic price, but said "we sell our basic systems for $2,500." Like Freedom Systems' units, FKI's units also offer remote viewing.

When used properly, surveillance systems more than pay for themselves, the manufacturers' reps said, and as Bayless pointed out, the cost of stopping losses is far less than the amount spent trying to make money through marketing and promotions.

"It's a choice: spending $300 a month on advertising versus stopping $1,000 to $2,000 in losses a month," she said. "Whatever the amount you're losing, using something like this is like plugging a leak in your cash register."

Topics: Crime , Operations Management

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