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The Compliance Audit & Hospitality Theft

By Errick Calloway
June 1, 2011

Unfortunately the loss prevention industry has become very dependant on technology to solve theft and operational issues and the hospitality world is not immune to this trend.  From DVR systems that can be viewed over the internet (virtual private networks), to exception based reporting systems that track every transaction, night vision and hidden cameras, the list goes on and on.  The old days of the bean counter with the clipboard has not totally fallen by the way side, but the reactive instead of proactive philosophy of the loss prevention industry is unfortunately alive and well.  So what happens when technology fails and the loss prevention professional is not able to gather all the evidence needed to effectively close out a theft case?  How does the hospitality industry combat food theft by employees (eaten or given away), alcohol, merchandise theft of linens (later sold to a flea market or on e-bay), or toiletries, which over time could add up to thousands of dollars a month? The answer is…… the compliance audit.

Even for those companies that view the compliance audit as a vital part of the hospitality industry, far too often the completion of an audit is performed by someone not cross trained in theft investigations or an investigator that does not know what the day to day operations are supposed to look like.  In either situation, a vital piece of the puzzle can easily be hidden by a dishonest employee (DE) or manager.  Let’s break down the audit into its fundamental pieces and see why it is important to be trained both as an operational auditor and a loss prevention investigator.

The purpose of the audit first and foremost is to make certain that the staff is performing all tasks as set forth in the standard operating procedures.  This could be as “harmless” as not having employees fully stock rooms with the required amount of toiletries or as damaging as allowing a part-time employee to countdown, prepare, and drop their own deposit without any supervision.  There is also a very important deterring factor to audits that is often ignored.  An irregular audit schedule makes a potentially DE have to be more creative in the way they steal for the company.  The more creative they have to be, the more mistakes they are likely to make, thus increasing the chases of the DE being caught.  If conducted thoroughly enough the likelihood of the employee giving up and not committing the theft increases greatly.  As mentioned in a previous article, the goal is to deter the 30% of employees looking for the opportunity from ever crossing that line into dishonestly.  This can all be accomplished by a simple excel spreadsheet and a well “cross trained” eye.

In addition to the ultimate goal of deterring a potential DE; the compliance audit also helps breed a familiarity with management and staff.  When employees know that they can count on an impartial, helpful, and most of all knowledgeable auditor, management and staff are more likely to open up with regard to issues that pertained to theft, operational losses, and violations of policy.  When they only see the investigator when something goes wrong, or the auditor is not approachable, employees are a lot less likely to report any currently unknown issues.  One lesser known tactic is to include operations questions (usually not scored) as part of the audit.  These are questions designed to test the employee’s knowledge of day to day activities above all else; however they can also act as an ice breaker to relax the employee allowing the auditor/ investigator to obtain useful information.  All the gadgets and technology in the world can never replace the amount of knowledge and experience a full time employee will be privy to in a relatively short period of time.  Nothing beats a good tip!

Questions usually lead to other questions before they lead to the answers.  When creating a compliance audit, it is important to get input from as many executive sources as possible.  Everyone believes that the issues in their “world” are the most important and should be the priority, so it is paramount to gather as much information from many different sources in order to cover all of the bases.  The big four are:
  • Operations- Opening and closing procedures, cash handling, forms common to all, emergency procedures, filing of documents, delivery procedures, inventory, counts of key merchandise, equipment maintenance, etc.
  • Physical Security- Key control, burglar/ fire alarms & response procedures, CCTV (cameras), register access, safe/ back room access, storage facilities (onsite & offsite),  etc.
  • Loss Prevention- Theft and fraud awareness programs, documentation to be saved and/ or sent to corporate, accountability logs, security of personal belongings, inspection of personal belongings (upon arrival/ departure and whenever employees leave property) , visitor access controls, safety standards, how to handle merchandise not properly ticketed, etc. 
  • Human Resources- Key government forms (I-9 & W-2), proper training forms, proper licensing forms, proper uniforms, workmen’s compensation and general liability forms on hand, accidents/ incidents on file, etc.
The compliance audit can be a challenge to put together and execute, but it will always be the most cost effective means of uncovering losses due to theft, negligence, operational errors, or policy violations.  The cross training of the loss prevention investigator and auditor also makes the process more efficient.  Does your company have a plan if and when technology fails?

About the Author:

Errick Calloway is the sole proprietor of Prevention Unlimited.  He has over 12 years of loss prevention experience across many different industries, to include, but not limited to, department store retail, hospitality, specialty retail, restaurant, and grocery.  Over the last five years, Errick’s focus has been employee theft investigations and compliance auditing.  Specializing in “cold interviewing”, Errick employs the Wicklander/ Zulawski and Reid techniques of interview and interrogation as well as kinesics (body language) to illicit confessions for theft and fraud.  This combined with his ability to custom create audits based on the specific needs of the client, Errick has the ability to obtain confessions without evidence in many cases.  In addition to the aforementioned experience, Errick is proficient at the operation/ installation of CCTV (close circuit television) and all aspects of physical security as well.  To learn more about Errick’s approach and philosophy, please visit: or contact him at


Errick Calloway
Prevention Unlimited
(678) 313-4855

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Also See:
Internal Theft in the Hospitality Industry / Errick Calloway / May 2011

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