The True Cost of Staff Theft

As restaurateurs, we are all well aware of the high incidence of theft by our employees.  Proper supervision and other internal controls can help minimize theft.  As prudent businesspeople, we try to balance the cost of detecting and preventing theft against the cost of the items taken from the restaurant.  Usually, we only consider the actual cost of the item that is being stolen.  If a bottle of wine that costs us $20 goes missing, we consider our cost of the theft to be $20.  Sound about right?

Unfortunately, your true cost of theft is substantially higher than the cost of the items that go missing!  If you don’t believe me, please read on.  You are about to be shocked and angered, I hope.

Virtually anything in a restaurant can be stolen.  Cash, pop, food, alcohol and even supplies and toilet paper!  But the most frequently stolen items also happen to be the most important and the costliest of all things to take from us.  Of course, I’m referring to alcoholic beverages – liquor, wine and beer.  Why should the theft of alcohol be any costlier than the equivalent amount of beef tenderloin, foie gras or extra virgin olive oil?

The theft of alcoholic beverages will cost you significantly more than the theft of the same dollar amount of food or supplies, because when you are eventually audited, unless you can “prove” the amount of alcohol that was stolen, the auditor will assume that you sold it and pocketed the cash.  The auditor will reassess your business for the sales tax (and possibly income taxes) on the unreported sales, along with penalties and interest.  The auditor may also consider that you, as the owner/manager or as a shareholder, received a benefit from the company equal to the amount of unreported income.  Now, you will have a significant personal tax liability and the company will not have received a deduction for the benefit charged to you.

While every situation is different, that $20 bottle of wine that disappeared could end up costing you another $40 in taxes, penalties and interest.  Don’t forget that you already lost $20 when the wine went missing!

Even if you think you have staff theft under control, think again.  There are many ways to steal alcohol from a restaurant.  Staff can overpour drinks to receive higher tips, customer comps may not be rung in, to avoid getting approval from management, servers may fail to ring in drinks, and of course, bottles do end up in knapsacks and walk out the door!

When it comes to an audit, it doesn’t matter how the shortage in alcohol arose, the shortage will give rise to a significant tax liability to the restaurant.  Now, more than ever before, you must be vigilant in preventing as much theft of alcohol as possible, and when it does happen, formally document and “prove” the amount of the loss, each and every time you become aware of the losses.

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