Introduction
Employee credit card fraud in the QSR industry is any attempt by employees to manipulate customers’ use of debit cards and credit cards. Understanding false refunds, mobile payment scams, card skimming, and other fraudulent techniques is the starting point for QSR managers who focus on QSR loss prevention.
Estimates are that employee theft is responsible for 75% of restaurant inventory losses and 4% of sales, which equates to approximately $3 to $6 billion annually. There are many security solutions for QSR owners to stop the loss of these billions from employee credit card fraud. They must first become more knowledgeable about this topic, implement the appropriate preventive measures, and initiate a comprehensive employee training program. This combination will allow QSR owners and managers to maximize their control of QSR loss prevention.
Common Methods of Employee Credit Card Fraud in QSRs
In 2019, the average customer paid for a QSR order with cash just twice, and slightly more than three transactions were non-cash payments. In 2023, those averages changed to less than 1.5 cash payments and more than four non-cash payments. The opportunities for employee credit card fraud have been increasing. Although QSR owners must also protect themselves from cash transaction fraud, credit card fraud is the bigger leaky hole in the boat.
A 2023 Forbes article stated that more than 50% of consumers use digital wallets more often than cash, debit, and credit cards, creating a new opportunity for employee credit card fraud. QSR loss prevention technologies can address this challenge, too, preventing employee theft.
- Card skimming – Employees who use this fraudulent method will use a skimming device attached to the POS terminal. They may also upload a fraudulent mobile POS app to their phone. They can access and steal customers’ card information to make unauthorized purchases for themselves.
- Manual recording—Employees who want to commit fraud may record credit card information manually. This method, known as the Card-Not-Present method, records information without the card being in hand.
- Manipulating transactions—In a refund scam, employees enter false refunds into the POS system, diverting funds to their accounts. Employees first download a mobile payment app with an account on their phones to use the mobile payment scam. They then enter a transaction into the POS system. When customers present their cards, employees tap their phones instead of the POS reader, and the funds are deposited into the account.
- Unauthorized refunds – By entering false refunds into the POS system, employees can direct funds to their accounts with a swipe of their cards or digital wallets.
Warning Signs of Credit Card Fraud in the Workplace
Identifying the warning signs of employee credit card fraud is essential for all QSR owners and managers. With this knowledge, they can be proactive about QSR loss prevention. The common methods of employee credit card fraud listed above, and others, require some planning, apps loaded to phones, and experience with the transaction/POS system. Employees will tend to know how to hide their fraudulent activities, making it difficult to catch them.
- Unusual behavior patterns—The transaction/POS process is typically repetitive. When employees deviate from it or interrupt the steps to grab their phones, that is a fraud warning.
- Repeated discrepancies—Various indications of possible employee fraud include financial discrepancies, such as unexpected cash shortages and missing receipts or invoices, and suspicious transactions, such as multiple orders with similar card numbers and inaccurate expiration dates.
- Changes in employee behavior—Driving a new car, wearing expensive jewelry, and wearing designer fashions may indicate that employees are living beyond their means. QSR managers should also be wary of employees who resist audits or seem defensive when scrutinizing their work.
- Customer complaints—Honest mistakes will occur when using debit and credit cards, but if management receives more complaints from customers about incorrect charges or other account anomalies than usual, it may indicate employee credit card fraud.
How to Detect Fraud Early
Knowing the warning signs of employee credit card fraud is just one method of detecting fraud early. The sooner QSR managers notice fraud, the sooner they can protect their merchandise and financial assets and remove the employee. Although some employees may be shocked that someone they worked closely with is a fraudster, it is also a sign that management won’t tolerate employee theft. Employees may also be pleased that the “rotten apple” was dismissed, improving the workplace culture.
- Advanced POS system – An investment in an advanced POS system will pay for itself, giving QSR management a strong method for preventing employee theft. Discrepancies and other indications of fraud will be more evident when the system is fully integrated with inventory management and accounting software.
- Real-time transaction monitoring—AI-powered security cameras and monitoring systems provide management with sharp, clear imaging to monitor transactions. With cloud storage, video data can be reviewed anytime from anywhere.
- Anonymous reporting channels – When management develops a security-conscious culture, employees are more likely to report possible fraudulent activities without fear of reprisals. Offering anonymous channels, such as secure online forms, mobile apps, or email addresses, can motivate employees to report.
- Employee training—Ultimately, employee training is more likely to suppress the urge to commit fraud by educating employees about being observant of fraudulent activities. Emphasizing that employee fraud directly affects the restaurants’ bottom line and, therefore, pay raises and advancements can help develop a better security mindset among employees.
Preventative Measures to Combat Employee Credit Card Fraud
Just as in health, QSR loss prevention is the best medicine. QSR owners have many methods available to them to minimize employee credit card fraud. Some of those methods are investing in and implementing security technologies, comprehensive employee training and policies, audits, and compliance. This multi-level approach identifies and eliminates fraudulent practices, making it much more difficult for employees to engage in fraud.
Technology Solutions
Many of the same security technologies used to detect and deter unauthorized intruders and thieves will assist QSR managers in preventing employee theft.
- Video surveillance – When planning the installation of security cameras, QSR owners should choose camera positions that provide a total view of the transaction/POS areas. Cameras in the backroom view and record employee interaction with inventory, vendors delivering inventory, and office personnel who handle cash and other transaction data.
- POS/transaction enhancements—A POS system with advanced technologies supplemented with various strategies will provide added security. These include EMV chip cards that read credit cards faster, point-to-point encryption that secures card data during the payment process, and mobile payments instead of using physical cards.
- Artificial Intelligence (AI)—AI is a major step forward in security technology. From access control to CCTV cameras to monitoring stations to inventory control, AI creates a faster and more accurate overview of fraudulent activities. AI algorithms can also analyze employees’ movements and flag unusual or suspicious activities.
Employee Policies and Training
Encouraging a team spirit among employees will develop a shared mindset that employee credit card fraud affects everyone, including the quality of their work, productivity, and the trust between management and workers.
- Employee policies—QSR management can’t expect employees to follow the rules unless they are delineated and understood. Employees who know the “red lines” are less likely to cross them. Background checks should always be conducted on new employees. Management may want to periodically do credit checks on employees who process customer credit card purchases and have access to financial data and reports.
- Establishing clear penalties – An essential portion of those policies is establishing and reviewing employee credit card fraud. Management protects itself from disagreements when employees are confronted with suspicions or must be terminated.
- Remedial training – Employee training about credit card fraud is not a one-time event. Regular sessions can re-emphasize the fine points and share any new fraudulent tricks, policies, and technologies.
- Rotating job responsibilities—It’s a good practice to rotate those who handle customer transactions. Not only can this reduce employee credit card fraud, but it can also identify employees who perform certain jobs better than others.
Audits and Compliance
Although QSR managers want to minimize employee credit card fraud before it occurs, they can also identify and address those activities with periodic and surprise audits. All card brands require PCI DSS (Payment Card Industry Data Security Standard), so management must ensure compliance.
- Conducting regular audits – Preventing employee theft requires more than a casual transaction/POS data review. End-of-day reports and user reports will reveal all transactions employees are processing, including debit and credit cards and cash sales. Checking void reports daily is another good practice to determine which employees have the highest void rates.
- Maintaining compliance – Following the PCI DDS policies maximizes employee loss prevention and protects customers’ credit card data, reducing complaints and issuing order comps. Failing to comply with standards can lead to penalties and even loss of a restaurant’s account, which could be fatal to the business’s future.
Case Studies and Practical Examples
To enhance their knowledge of employee credit card fraud, QSR owners and managers can learn to be even more vigilant with real-world examples and case studies. The tools and strategies other QSR owners use to improve QSR loss prevention are applicable in many QSR restaurants.
- Employees photographing customers’ cards – A diligent group of Greensboro, North Carolina, citizens received complaints via the group’s Facebook page that employees at a local QSR were photographing cards. The employees recorded the front and back of the cards on their phones at the drive-through window. This example reveals why advanced CCTV camera technology is necessary at a restaurant’s drive-through station and all other transaction points.
- Using a business app to steal credit card information – A QSR worker in Mobile, Alabama, was arrested more than once for using a Square business account to steal customers’ credit card information. Several customers found suspicious purchases on their accounts. Advanced POS technology, real-time transaction monitoring, and anonymous reporting channels could have detected this fraud sooner. Given that this person had been previously convicted of the same crime, a more thorough background check was needed.
- Catching employee fraud with DTiQ’s 360iQ platform—Aunt Anne’s, a chain of pretzel shops across the United States, utilizes DTiQ’s 360iQ platform throughout the business. Using it as a human resource tool helps to reveal fraud. Management can view live footage at any of the locations to monitor all activities.
Future Trends and Emerging Technologies
As most other technologies continue to evolve with more advanced features and functions, so too have technologies to minimize employee credit card fraud. Investing in these advanced technologies is a smart decision. With high-quality parts and construction, cameras, monitoring systems, and alarms will deliver peak performance for years. Automation is also built into many of these devices and components, so managers spend less time monitoring activities, but are totally covered.
- Artificial Intelligence (AI)—When AI was added to security cameras, monitoring systems, and other security devices, QSR owners had a new, powerful ally in QSR loss prevention. Not only are images sharper, ensuring management’s ability to spot suspicious activities, but object and facial recognition and motion detection help distinguish acceptable from unacceptable employee behavior.
- Machine learning – Often considered a complement to AI technology, machine learning analyzes past video and financial data to learn patterns and behaviors. It can predict fraud risks that QSR owners may have overlooked.
- Mobile device management (MDM)—Many QSR restaurants equip employees with mobile devices for conducting transactions and payment processing. MDM technology allows for pre-loading policies and limits, as well as tracking device usage.
- Advanced POS systems – QSR managers should regularly check POS hardware and software for alterations, even with the most advanced transaction systems.
Conclusion
Employee credit card fraud is a reality in the QSR restaurant business model. Still, owners and managers can minimize the risk with advanced technologies, employee training programs, best practices, policies, and constant, in-depth review and analysis of transaction data. QSR managers can enhance their efforts to combat fraud when they are thoroughly knowledgeable about the types of fraud and the warning signs of possible fraudulent activities.
With that knowledge, managers can select and invest in the best preventative measures. These include technological solutions, such as advanced video surveillance and POS systems equipped with AI; a comprehensive employee training program with specific policies and penalties; periodic transaction audits; and ensuring PCI DDS compliance. DTiQ has a nationwide team of loss prevention experts that can identify and prevent employee credit card fraud in the QSR, retail, and C-Store industries. Contact us to learn more.
Frequently Asked Questions
Q: What is employee credit card fraud?
A: Employees will use various methods to manipulate the customer transaction process. Three of them are card skimming, manual reporting, and refund scams. Card skimming involves attaching a skimming device to the POS terminal to steal customers’ card information to make unauthorized purchases. Employees may also use the Card-Not-Present method, which records information without the card being in hand. In a refund scam, employees enter false refunds into the POS system, diverting them to their accounts.
Q: What are the warning signs of employee credit card fraud?
A: Employees may deviate from the transaction/POS process or interrupt the steps to grab their phones. Look for financial discrepancies, such as unexpected shortages in cash, and suspicious transactions, such as multiple orders with similar card numbers. Changes in employees’ behavior may indicate they are living beyond their means, with a new car and wearing expensive jewelry. Another sign is an uptick in customer complaints about incorrect charges or other account anomalies.
Q: How can I detect employee credit card fraud early?
A: Once QSR managers know the warning signs, they can utilize an advanced POS system to look for transaction discrepancies and real-time transaction monitoring to view employees assigned to the customer checkout area. Employee training can emphasize that employee fraud directly affects the restaurant’s bottom line and pay raises and advancements. Management should also provide employees with anonymous reporting channels to share their suspicions of employee credit card fraud without fear of reprisals.
Q: How can I prevent employee credit card fraud?
A: QSR management can address the problem with a three-tiered approach. Video surveillance with AI-powered cameras provides a total view of the transaction/POS area, the backroom to view inventory, and the office where cash is handled. Employee training should also focus on transaction policies and the penalties for committing fraud. Conducting regular audits of transactions and other data, as well as maintaining PCI DDS policies, are other strategies QSR managers can use to combat employee credit card fraud.
