The Top 10 Restaurant Scams Highlighted By Industry Experts

Credit Card Skimming Operations Inside Restaurants

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 impact on restaurants extends beyond immediate financial losses. These stolen credit card details were sold on the dark web, leading to widespread unauthorized transactions, and by the time the fraud was uncovered, the restaurant had accumulated thousands of dollars in chargeback fees, while the restaurant’s reputation suffered as customers spread word of the security breach, resulting in a decline in business. Security experts recommend regular POS system inspections and employee training as critical prevention measures.

The Wagon Wheel Cash Scam

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, with servers moving the order to a new “ghost check” and keeping 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. This sophisticated internal fraud scheme allows dishonest employees to steal continuously without triggering immediate red flags in the system.

Detection requires vigilant management oversight. To detect this scam, managers should watch how long tabs are kept open, on average, checking server-specific tab averages too, with anything that’s more than a few hours old considered suspicious. The beauty of this scam from a criminal’s perspective lies in its simplicity and the fact that it can continue throughout an entire shift without detection.

Account Takeover Attacks on Digital Ordering

Digital fraud has exploded in the restaurant industry, with significant increases in account takeovers reported across various industries. These prevalent attacks occur when fraudsters steal a user’s account credentials and gain access to an organization’s network. The rapid growth of online ordering during the 2020 pandemic created perfect conditions for these attacks to flourish.

The financial impact is staggering for restaurant operators. Olo Pay helped WaBa Grill reduce fraud by over 30% and saved Lucille’s Bar-B-Que an estimated $1.1 million by blocking nearly 6K high-risk orders. Industry experts emphasize that restaurants must invest in advanced fraud protection technology to combat these increasingly sophisticated attacks.

Fake Vendor Payment Redirect Schemes

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, with the money then getting sent to a criminal instead of the actual vendor. This type of business email compromise has become particularly dangerous as 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.

The vulnerability stems from reduced oversight in payment processing. Unfortunately, the level of control AP departments have over payments has thinned as they increasingly turn to third-party middlemen to help execute transactions, with more points along a payment pathway, and each represents an opportunity for fraud, which is why restaurants of all formats need to remain especially vigilant to identify anomalous activity or requests from a vendor. Banking experts strongly recommend verification procedures before any payment changes.

Employee Time Theft and Buddy Punching

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. Time theft statistics vary across studies, with significant percentages of employees reportedly engaging in such practices.

The financial impact accumulates rapidly across the industry. Internal employee theft accounts for 75% of restaurant inventory losses and 4% of restaurant sales, with employee theft in the restaurant industry costing businesses $3 to $6 billion annually. Restaurant owners often underestimate how these “minor” infractions add up to significant losses over time.

Gift Card Fraud and Balance Hijacking

In redemption hijacking, fraudsters acquire the details of a gift card number and PIN and then monitor the card’s balance online, and as soon as the card is loaded with funds, they quickly redeem the balance through purchases or sell the card details to other buyers. According to industry reports, gift card fraud losses amount to hundreds of millions of dollars annually, making this a significant threat to restaurant profitability.

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.

Promotion Abuse and Coupon Stacking

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 has become increasingly automated and difficult to detect.

The scale of promotional fraud continues to grow as digital ordering expands. Fraudsters create multiple fake accounts to exploit first-time customer discounts, loyalty rewards, and promotional offers repeatedly. Restaurant chains with sophisticated loyalty programs become particularly attractive targets for these organized fraud operations.

Refund and Void Transaction Manipulation

In refund fraud, an employee processes a fake refund for a transaction that never occurred and then pockets the refunded cash, with this type of fraud being particularly damaging if it goes unnoticed, as it directly impacts the restaurant’s revenue. Another way that employees can skim cash is by entering false voids or discounts into transactions and pocketing the difference, for example, a customer may pay full price for a product, but the employee applies their employee discount to the order and pockets the difference, or employees may simply void the transaction after receiving the cash from the customer and pocket the cash for the entire order.

Detection requires careful monitoring of transaction patterns. This type of skimming can often be detected by a sudden rise in voids or discounts in the POS. Advanced POS systems can be configured to require manager approval for refunds, voids, or discounts, making it harder for employees to commit fraud, and these systems also keep detailed logs of all transactions, which can be reviewed regularly to spot suspicious activity.

QR Code Menu Scamming

QR code scams, sometimes called quishing (short for QR phishing), involve scammers placing fake QR codes in public spaces like cafes, parking meters, or on restaurant tables, and when victims scan them, these codes direct them to malicious websites designed to look like legitimate payment portals. QR codes, which gained popularity in restaurants during the 2020 pandemic, are vulnerable to cyber-attacks.

By handing over your information, you unknowingly give the scammer access to your account, leading to fraudulent purchases, and according to the Oregon Department of Justice, these scams can also lead to your identity being stolen or malware being installed on your device. Restaurant patrons often scan QR codes without questioning their authenticity, making this an particularly effective attack vector for criminals.

Data Breach and POS System Compromises

Recent industry reports indicate that data breach costs in the hospitality industry have been increasing significantly year-over-year, as technology allows criminals to have more access points to operations, and restaurants that haven’t upgraded their processes are at increased risk. In 2023, hotels and restaurants witnessed a 14% surge in the average cost linked to data breaches, coming alongside the industry’s increased reliance on digital platforms and as the challenge of understaffing underscores the urgency for businesses to fortify their cybersecurity measures.

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. The restaurant industry’s rapid digital transformation has created numerous vulnerability points that criminals actively exploit.

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. From internal employee theft to complex digital attacks, these scams exploit every weakness in restaurant operations. The key to survival lies in understanding these threats, implementing robust prevention systems, and maintaining constant vigilance. What would you have guessed was the most costly scam on this list?