The restaurant industry faces an unprecedented surge in sophisticated fraud schemes that are bleeding businesses dry. The restaurant industry faces an unprecedented wave of sophisticated fraud schemes that are costing operators billions annually. Industry estimates suggest restaurants lose billions of dollars annually to various forms of fraud. What makes these scams particularly devastating is how they exploit every vulnerability in restaurant operations, from digital payment systems to employee management. Between March 2023 and February 2024, the average cost associated with a data breach in the hospitality industry – which includes hotels, cruise lines and restaurant chains – reached $3.86 million, up from $3.37 million during the same period in 2022–2023.
The restaurant industry’s rapid digital transformation has created numerous vulnerability points that criminals actively exploit. From internal employee theft to complex digital attacks, these scams exploit every weakness in restaurant operations. These revelations come directly from industry insiders who have witnessed firsthand how fraudsters are adapting their methods to target restaurants with increasing sophistication. So let’s dive into the most damaging scams currently plaguing the industry.
Employee Cash Skimming Through Voided Transactions
Cash skimming through transaction manipulation has become one of the most insidious forms of restaurant theft. A common way for employees to steal cash is by voiding checks. A server takes an order for a table, and the total check is $100. If the table pays the bill in cash, the server voids the check and takes $100 out of the register. The brilliance of this scam lies in its simplicity and how it circumvents basic accounting controls.
Since the voided check won’t show up on the total amount sold, the POS report total from the day and the take from the register will match. Voided check scams often involve more than one person, especially in restaurants requiring manager sign-offs to void a check. The “wagon wheel” scheme represents an even more sophisticated evolution of this fraud. In a scam known as “the wagon wheel,” employees move orders in the POS from one check to another and pocket the cash after the customer pays. Let’s say a customer orders your famous lunch special, pays cash, and leaves. Rather than voiding the entire order, which would raise suspicion, the server moves the order to a new “ghost check” and keeps the customer’s money. Assuming there will be more lunch special orders, the server can keep the wheel churning for the rest of their shift.
Cash skimming, bogus refunds, after‑hours voids, and “no‑sale” drawer pops let employees walk away with real money while the POS report still appears to balance. Because margins in food service are thin, even a single dishonest cashier can erase a week’s profit. Two former managers at Mary’s Pizza in Santa Rosa, California, demonstrated the devastating potential of this fraud when they voided tickets long after guests paid and stole about $49,000 over eighteen months.
Inventory Manipulation and Food Theft Networks
Inventory theft represents a massive blind spot for most restaurant operators, with industry data revealing shocking statistics. Industry estimates suggest that employee theft accounts for a significant portion of restaurant losses. The National Restaurant Association estimates that employee theft accounts for 75% of restaurant loss. Industry sources indicate that internal theft represents a substantial portion of restaurant inventory shortages, with some estimates suggesting QSRs may lose significant percentages of sales to employee theft. The National Restaurant Association estimates that 75% of restaurant inventory shortages are due to internal theft, and QSRs will lose a whopping 7% of sales due to employee theft.
The sophistication of food theft operations often surprises restaurant owners. Employees steal raw materials like food and alcohol from the pantry and kitchen. It may be a stretch to call stealing from the pantry, walk-in or bar a scam, but it’s astonishingly common. What makes this particularly damaging is how systematically it occurs. Many restaurant owners leave purchasing to managers or chefs who order what they need without tracking dry goods, food and alcohol costs. Since few owners check costs, no one checks to see if costs are higher than necessary. Employees therefore seemingly have free rein to take what they like without fear of being caught by owners or management.
The undercharging scam represents another layer of inventory manipulation that’s difficult to detect. Undercharging occurs when an employee charges for a more expensive item and rings it into the POS as a cheaper item. For example, a bartender may take a customer’s order for a $15 glass of wine. The bartender then rings it into the restaurant’s POS as an $8 glass of wine, pocketing the $7 difference. Check inventory often. This scam is popular because it can’t be detected on most restaurant POS systems and flies under the radar unless inventory is consistently checked.
Credit Card Skimming and Payment Processing Fraud
Credit card fraud has evolved into one of the most sophisticated threats facing restaurants today. Credit card skimming has become frighteningly sophisticated in restaurant settings, with a high-end restaurant in New York City becoming the target of a sophisticated credit card skimming operation when a trusted staff member secretly installed a skimming device on the restaurant’s POS terminal, allowing them to collect hundreds of customers’ credit card information over several months. Industry experts warn that credit card fraud is one of the most prevalent and damaging fraud types faced by restaurants. Employees use skimming devices or their phones to steal customer card information, allowing them to make unauthorized purchases, involving attaching a skimming device to the POS terminal, which captures card information when customers swipe their cards.
The digital transformation has dramatically increased vulnerability points. According to cybersecurity reports, hundreds of millions of card records and millions of stolen bank checks were reportedly posted on dark and clear web platforms in 2024, reflecting a combination of increased data compromise events and rampant reposting, with card-not-present (CNP) data dominating. In 2024, 269 million card records and 1.9 million stolen US bank checks were posted on dark and clear web platforms, reflecting a combination of increased data compromise events and rampant reposting, with card-not-present (CNP) data dominating, signaling the growing impact of e-commerce fraud, and the volume of Magecart e-skimmer infections surging, reaching nearly 11,000 unique e-commerce domains – a threefold increase from 2023.
Card-not-present fraud represents a particularly insidious threat for restaurants with online ordering. Card Not Present Fraud: In this scenario, fraudsters use stolen credit card information to place orders online or over the phone. Since the physical card is not present, it becomes challenging to verify the transaction, increasing the risk of fraudulent activity. In 2022, there was a 71% increase in account takeovers across North America. And in 2023, the food and beverage industry, specifically, saw a 485% lift YoY in ATOs.
Vendor Invoice Fraud and Billing Manipulation
Vendor fraud represents one of the most overlooked yet costly threats to restaurant operations. With billing fraud costing businesses a median of $100,000 per case, according to the Association of Certified Fraud Examiners (ACFE), vendor fraud is both real and expensive. The average US company loses $300,000 each year due to fraudulent invoices. That’s why it’s essential to take proactive steps to prevent and mitigate this type of fraud before it happens.
The creation of shell companies represents the most sophisticated form of vendor fraud. One of the most dangerous forms of fraud starts with the creation of entirely fictitious suppliers. These shell vendors may have official-looking credentials, such as registered tax IDs, business addresses, or even forged bank letters – but they’re often controlled by internal employees or third parties with access to your vendor master file. Impact: This kind of fraud can go undetected for years, quietly draining thousands – or millions – if multiple shell vendors are created under variations of the same entity.
Billing manipulation schemes exploit restaurants’ high-volume purchasing patterns. Inflation schemes involve vendors overbilling for products or services – either by increasing unit costs, billing for undelivered goods, or padding invoices with vague line items like “miscellaneous fees.” Example: A supplier bills for 1,500 units when only 1,200 were delivered, relying on a busy AP department to miss the discrepancy. Invoices may even include charges for services never rendered. An over-billing fraud scheme occurs when a vendor pads up an invoice by adding supplies they never delivered or higher prices of delivered goods. This type of scheme is prevalent among vendors that supply in large quantities. The hope is that accounts payable will not have the time or tools for proper risk assessment.
Account Takeover and Loyalty Program Exploitation
Account takeover attacks have become increasingly sophisticated, targeting restaurant loyalty programs and customer accounts. Looking ahead, here are some fraud trends restaurants should be aware of: Account takeovers (ATO) are a hot topic across industries – and for good reason. In 2022, there was a 71% increase in account takeovers across North America. And in 2023, the food and beverage industry, specifically, saw a 485% lift YoY in ATOs. These prevalent attacks occur when fraudsters steal a user’s account credentials and gain access to an organization’s network.
The exploitation of promotion systems represents a growing threat to restaurant profitability. In promotion abuse schemes, fraudsters stack coupons, reusing single-use codes or setting up fake accounts to obtain extra discounts, with an example being when PayPal offered a sign-up bonus for new users five years ago, fraudsters executed bots to create over 4.5 million fake accounts which cost the company millions in lost revenue. This type of fraud leverages automation and sophisticated bot networks to exploit every available discount and promotion.
Gift card fraud represents another lucrative target for criminals. Online reselling scams involve scammers buying or obtaining gift cards through illegal means, such as using stolen credit card details, then selling these gift cards at discounted rates on unofficial websites or online marketplaces, with buyers who purchase these cards risking losing money if the original theft is discovered, and the cards are deactivated. Restaurant operators must implement robust tracking systems to monitor suspicious gift card activity patterns.
Time Theft and Buddy Punching Systems
Time theft may seem minor compared to other fraud schemes, but its cumulative impact can be devastating. Time theft comes in numerous forms: employees taking extra breaks, clocking in too early, or clocking out too late. Paper timesheets, poor employee engagement and poor scheduling can all be factors in encouraging employee time theft in your restaurant. Time theft occurs when an employee is unproductive during work hours or not physically at work when they’re clocked in, taking many forms, such as employees taking longer or unscheduled breaks, clocking in early or later than their shifts, or using their phones on the floor when they should be working, with “buddy punching,” asking another employee to punch in for you, also common in restaurants.
The buddy punching phenomenon exploits trust-based work environments typical in restaurants. When employees clock in for absent colleagues, it creates systematic payroll fraud that compounds over time. This becomes particularly problematic in restaurants with high turnover rates. Restaurant turnover rates have recently climbed over 50%, creating a constant demand for labor. But vetting the trustworthiness of new hires may be more rushed as a result.
Plus, there’s the turnover issue, which creates additional vulnerabilities. Restaurants are constantly hiring new employees, who have less familiarity with internal controls and vendor and supplier relationships. This creates an environment where time theft can flourish alongside other fraud schemes. The auto-gratuity scam also exploits customer confusion and employee opportunism. Auto-gratuity scams occur when an employee takes advantage of customers who may not have noticed that the gratuity was already added, and allows them to add an additional tip. Look for employees with higher than average tips. If there is a bill with a large tip in addition to a standard service fee, it is possible the customer wasn’t made aware of automatic gratuity and left an additional cash tip.
