7 Restaurant Scams Explained By Industry Professionals

Cash Skimming – The Silent Money Drain

Cash skimming represents one of the most devastating yet invisible forms of restaurant theft. Employees may use cash skimming to pocket cash from customers before it is recorded in the POS system. This type of theft is challenging to detect, especially in high-volume environments where cash transactions are frequent. The method works perfectly because there’s literally no paper trail – the transaction never happened in the system’s eyes.

Industry studies suggest that a significant percentage of employees may steal from their employers and make a habit of it. What’s shocking is how employees convince customers to pay with cash, claiming the credit card machine is “faulty” or that cash is simply faster. The most obvious is the employee who doesn’t ring up the sale and pockets the cash. Said employee convinces the customer to pay with cash because there’s a “faulty” credit card machine or it’s just plain faster.

The Wagon Wheel Scam – Moving Money Around

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. Here’s how it works: a customer orders 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.

The wagon wheel scam is more popular than one might think. To monitor if any fraudulent activity is going on at your restaurant by way of a wagon wheel, review same-item transfers in cash transactions by employees. The beauty of this scam from the thief’s perspective is that it’s nearly undetectable without proper monitoring systems in place.

Friendly Fraud and Chargeback Abuse – The Customer Con

Friendly fraud is one of the most common attacks used against merchants, including restaurants. Friendly fraud has been increasing significantly in recent years across various markets. It occurs when a guest receives an order and then files a complaint to get a refund and keep the items. This isn’t just a restaurant problem anymore – it’s become epidemic across all industries.

The statistics are mind-blowing. Major card networks estimate that as much as 70% of all credit card fraud can be traced to chargeback misuse, or ‘friendly fraud,’ an issue that surveyed merchants say has increased nearly 20% over the last three years. Even worse, a customer who successfully files a chargeback is nine times more likely to file another one, and 40% of customers who file a chargeback will file another one within 60 days. It’s like a gateway drug for financial fraud.

Businesses are expected to lose $25 billion to friendly fraud by the end of 2025. This significant financial loss can severely impact a restaurant’s business, leading to decreased profitability and potential operational challenges. What makes this particularly frustrating is that roughly 58% of cardholders would first file a chargeback without contacting the merchant.

Account Takeover Fraud – Digital Hijacking

The food and beverage industry has seen substantial increases in account takeover attacks in recent years. These prevalent attacks occur when fraudsters steal a user’s account credentials and gain access to an organization’s network. This represents one of the fastest-growing threats facing restaurants today, especially those with robust online ordering systems.

The fraud works like this: criminals hack into customer accounts and place orders using stored payment methods. With control of the victim’s account, fraudsters use social media, private messaging apps, the dark web, and cryptocurrency to sell meals to buyers, paid for with the victim’s account. Videos advertising such scams proliferate on TikTok and other social media, enabling less tech-savvy fraudsters to participate as well.

In 2022, there was a 71% increase in account takeovers across North America. What’s particularly alarming is how social media platforms have become marketplaces for these illegal services, making sophisticated fraud accessible to virtually anyone.

Auto-Gratuity Double Dipping – The Tip Trap

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. 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.

This scam particularly targets customers who aren’t paying close attention to their receipts or tourists unfamiliar with tipping customs. Look for employees with above-average check counts that have auto-gratuities. You can also check for high total-tip-to-sale percentages to detect auto gratuity scams. The financial impact might seem small per incident, but it adds up quickly when employees consistently exploit unaware customers.

The psychological aspect makes this scam especially effective – customers often feel awkward questioning gratuity amounts, especially in busy restaurants where they don’t want to hold up other diners.

Vendor Payment Fraud – The Invoice Imposter

Fraudsters have become more sophisticated over time and now deploy some of the same tools used by legitimate businesses – such as chatbots and large language models – to produce scam emails and requests that look legitimate. There has been a recent boom in fraud where back-office workers get emails from what appears to be a known vendor asking to change the payment details for invoices. The money then gets sent to a criminal instead of the actual vendor.

Unfortunately, the level of control AP departments have over payments has thinned as they increasingly turn to third-party middlemen to help execute transactions. Simply put, there are more points along a payment pathway, and each represents an opportunity for fraud. That’s why restaurants of all formats need to remain especially vigilant to identify anomalous activity or requests from a vendor.

This type of fraud has exploded because AI tools make it incredibly easy to create convincing fake emails. The criminals do their homework, studying vendor relationships and payment patterns before striking. It’s not just small restaurants getting hit – major chains have lost hundreds of thousands to these sophisticated schemes.

Digital Delivery Fraud – The Modern Dine and Dash

There are signs that it is growing in restaurants. Chargeback rates on food and delivery orders increased 31% year over year in the first quarter of 2023, Sift found. The delivery boom has created entirely new opportunities for fraud that didn’t exist when restaurants were primarily dine-in establishments.

In survey results published this week by fraud protection company Sift, 42% of Gen Zers and 22% of millennials admitted to requesting a refund for an online purchase even though they received the item. The scheme, known as first-party or “friendly” fraud, tends to increase during times of economic hardship, according to Sift.

Online ordering, delivery, express pickup (BOPIS – buy online pickup in-store), and curbside had been steadily expanding for years, it massively accelerated during the COVID-19 pandemic (growing by a whopping 93% in 2020 alone). This acted as a major catalyst for restaurant chargebacks, which increased from 1 in 400 transactions to 1 in 100 since the start of the pandemic. While some of these may be for fair reasons related to miscommunications and delivery issues, it’s easy to see why fraud has grown as well. What’s particularly troubling is how the anonymity of digital transactions makes customers feel less guilty about fraudulent claims.

Void and Discount Manipulation – The Shell Game

A void is a transaction which cancels, or entirely deletes, a completed transaction. Wrongly voided transactions happen when a server charges a customer for their full order, but later voids certain items and pockets the money for said items. This creates a perfect storm where the customer pays full price, but the restaurant’s books show a partial sale.

The shell-game scam is easy to identify: Set daily alerts on cashier voids, discounts, and cancellations, and focus on a variation in metrics. If you see a higher-than-usual threshold, you most likely detected suspicious behavior. The key is recognizing that honest mistakes happen occasionally, but patterns indicate intentional fraud.

Employees often start small with this scam, testing whether management notices unusual void patterns. In this scam, an employee processes a fake refund for a transaction that never occurred and then pockets the refunded cash. This type of fraud can be particularly damaging if it goes unnoticed, as it directly impacts the restaurant’s revenue. The psychological comfort of seeing “void” rather than missing money makes this scam particularly insidious.

Time Theft and Buddy Punching – Stealing Hours

Time theft occurs when an employee is unproductive during work hours or not physically at work when they’re clocked in. Time theft takes 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. “Buddy punching,” asking another employee to punch in for you, is also common in restaurants.

Nearly half of employees (49%) admit to time theft. And while lax managers and owners may forgive small cases of time theft, statistics show these stolen hours add up: Accountants say 92% of their clients hav time theft issues that cost significant money over time.

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. What makes this particularly costly is that it’s often seen as “victimless” by employees, when in reality it directly impacts labor costs and productivity.

Credit Card Skimming – The Physical Steal

Physical Card Fraud: This occurs when a server or employee takes a customer’s credit card and uses a skimming device to copy the card information. The stolen credit card information is then used for unauthorized purchases, leading to significant financial losses and potential chargebacks for the restaurant. This old-school method remains surprisingly effective because customers naturally hand over their cards without suspicion.

In 2024, 62 million U.S. consumers experienced credit or debit card fraud with a $100 average fraudulent charge. While technology has improved payment security, your credit card information can be stolen through pickpockets, skimmers, or crimes of opportunity (like when your server takes your credit card at a restaurant).

The restaurant environment makes this particularly easy because taking credit cards is part of normal service. Customers don’t think twice about handing over their cards, and busy servers have multiple opportunities throughout their shifts. Modern skimmers are incredibly small and can capture card data in seconds, making detection nearly impossible without proper security protocols.

The Real Cost of Restaurant Fraud

Restaurants face significant losses to fraud each year, with industry estimates suggesting billions in annual losses. Internal employee theft accounts for 75% of restaurant inventory losses and 4% of restaurant sales. Employee theft in the restaurant industry costs businesses$3 to $6 billion annually.

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 $3.82 million, up from $3.36 million during the same period in 2022–2023. These aren’t just numbers – they represent real restaurants closing their doors forever.

The fraud landscape keeps evolving, but the fundamentals remain the same: opportunity, rationalization, and pressure create the perfect storm for theft. The key is understanding these scams exist, implementing proper controls, and staying vigilant. Because in the restaurant business, every dollar counts, and fraud can be the difference between success and failure.