It’s dinnertime on a busy Friday, and customers are starting to back up in the lobby of a popular casual-dining restaurant. The phone rings in the office, catching the owner just as he is about to head back to the kitchen. The caller, identifying himself as a representative of “the company that services your copier,” says he is supposed to deliver an order of toner, but he needs to verify the copier’s model number and the restaurant’s address. The owner quickly complies and hangs up the phone, without the slightest idea that he’s just been scammed. In a few days, a box of copier toner will arrive with an outrageously inflated invoice and a notice that warns of expensive “restocking” fees if the merchandise is returned. Unwittingly, that restaurateur has just made a contribution to one of the nation’s largest growth industries — business fraud.

Fraud costs U.S. businesses an estimated $400 billion annually, according to the Association of Certified Fraud Examiners (ACFE) in Austin, Texas — a figure that is equivalent to 6 percent of an organization’s annual revenue, or $9 per employee per day. Using a variety of methods, from bogus direct-mail advertising to unscrupulous telemarketing schemes, scam artists have made a profession out of relieving companies of their profits.

Unfortunately, no matter how cautious business owners are, those who are familiar with such scams say that eventually everyone will probably get “taken” in some way. A restaurateur might unwittingly donate to a fraudulent charity, pay a bogus invoice or become a victim of workers’-compensation fraud. However, the experts say simply being aware of perpetrators’ methods can be one of the best forms of prevention.

An ill wind

“Every time we build a better mousetrap they [con artists] build a better mouse,” says Donald Boomershine, president of the Better Business Bureau (BBB) of Central Alabama and the Counties of the Wiregrass. “The local restaurant association is part of our sentinel system,” he says, explaining that it was the operators themselves who let him know about a recent alleged scam aimed directly at restaurants.

According to the Environmental Protection Agency (EPA), the alleged scam began in late summer 1996, when a company called Kentron of Georgia sent mailings to restaurants requesting registration fees of $189 in relation to the Clean Air Act of the EPA. Describing itself in those mailings as representing the nonexistent “Environmental Protection Enforcement Agency,” the company sent official-looking documents that notified recipients that they had to fill out attached forms and remit payment or face “a civil penalty of up to a maximum of $5,000 per day,” among other threats.

A number of Alabama restaurateurs received the notices. Boomershine says George Sarris, owner of two Birmingham restaurants called The Fishmarket, was the first to contact the bureau about the letter. Sarris says he knew right away the mailing was phony, but admits, “I’m sure in all the years I’ve been in business, I’ve paid quite a few of these.”

Jerry Evans, owner of the Greenbrier Restaurant in Madison, Alabama, also received a letter. “If I didn’t keep up with governmental issues, I might have fallen for it,” says Evans, who notes that he pays all of the bills for the restaurant. “If I didn’t, it may well have been paid.”

“That’s not the way government people do business,” says Charles Dobson, owner of All Steak Restaurant, located in Cullman, Alabama, who was another target of the alleged scam. Previous experience with government contracting made him decide not to pay it.

The EPA reports that on June 2, 1997, the owner of Kentron of Georgia, Avondale Estates, Georgia, was arrested on charges of impersonating an officer of the United States to obtain money and mail fraud in relation to the notices sent to restaurateurs. Birt was later found not guilty of the charges by an Atlanta jury.

The government grift

The EPA scam is similar to other fraud schemes that are based on actual state and federal policies. Using scare tactics and official-looking documents, con artists urge businesses to comply or risk governmental wrath.

In one scam, con artists solicit businesses to buy governmental-compliance posters that, by law, must be hung in the workplace. Although some suppliers do provide attractive, useful posters, other companies threaten large fines if theirs are not displayed and neglect to mention that such posters are usually available free from the agencies that require them to be posted.

Another policy-based scam capitalizes on the requirement for businesses to comply with the Americans With Disabilities Act (ADA). According to the Council of Better Business Bureaus, Inc. (CBBB), headquartered in Arlington, Virginia, the perpetrators advertise expensive “must attend” seminars about ADA specifications or offer pricey accessibility remodeling services. The CBBB advises that there are free sources of ADA information and that many costly building modifications may not be necessary. Also, some of the perpetrators claim ADA certification or approval, but the CBBB says there are no such designations.

Duping by direct mail

The direct-mail tactics used by con artists are also widely employed by others who send phony bills for goods and services in the hope of fooling an unsuspecting clerk or harried business owner who is too busy to closely examine invoices before paying them.

“The person who sends the invoice hopes that it gets through the system and a check ends up in their P.O. box,” says Thomas M. Huhn, certified fraud examiner and president of Huhn and Associates Inc., a corporate-security and private-investigation firm in Lilburn, Georgia. He advises that the person who is in charge of ordering supplies should check all invoices before paying them.

However, Sarris says, “Being taken is part of doing business. You don’t have time to look at every little bill.” And it appears that few restaurateurs are scrutinizing their invoices.

One of the most successful scams perpetrated against restaurants involves mailings from publishers of bogus yellow-pages directories. According to the Yellow Pages Publishers Association (YPPA) in Denver, con artists may be collecting as much as $500 million per year using a variety of fraudulent billing schemes, from listing “renewals” to “nationwide” line listings.

“Restaurants are one of the largest categories targeted by these con artists, with outstanding success,” says Robyn Frankel, spokesperson for the YPPA. “One of the things that makes this so easy is that the ‘walking fingers’ logo was never trademarked.” The familiar black-and-yellow symbol adds credibility to the fake mailings, making them harder to detect.

Eileen Wheeler, manager of the Open Hearth Grille in Youngstown, Ohio, said she didn’t realize the yellow-pages solicitation for $187 the restaurant recently received was bogus. “We threw it in the garbage,” she said. “We didn’t want to pay that much.” The restaurant, which was purchased from its previous owners last August, is listed in a 1997 nationwide yellow-pages directory, and the recent bill may have been a solicitation for a “renewal.”

The CBBB says it is illegal to mail a bill, invoice or statement of account due that is actually a solicitation. If the notice is a solicitation, it should bear a disclaimer required by the U.S. Postal Service that reads, “This is not a bill. This is a solicitation. You are under no obligation to pay the amount stated unless you accept this offer.” Any letters that a restaurateur receives that do not include that verbiage should be turned over to postal authorities.

Phone fraud

Bogus listings are not the only angle con artists can play to squeeze money from the telephones of unsuspecting businesses. Besides incessant telemarketing fraud, they are also using tactics like slamming, cramming and area-code scamming.

Although plenty of telemarketing schemes are aimed at consumers, businesses also suffer their share of phone fraud like the “office supply scam” described earlier. In 1996, the Federal Trade Commission (FTC) instituted “The Telemarketing Sales Rule,” which among other provisions, requires callers to disclose that they’re selling something and prohibits false and misleading claims to induce payment. The FTC says businesses are not required to pay for goods they have not ordered, nor must they pay to return them.

Slamming occurs when someone changes the long-distance telephone service provider of an individual or business without their permission. The con artists’ methods include sweepstakes entries containing fine print about switching long-distance services and innocuous-sounding telephone calls that “inform” the parties that their long-distance and local telephone charges are being combined into one mailing. Even “legitimate” phone companies have mailed checks to unsuspecting individuals who endorse and cash them without reading the fine print that authorizes a carrier switch.

The CBBB says a fairly new scam called “cramming” occurs when consumers or businesses are charged for optional phone services without permission. Fees for functions like voice mail and paging are charged by third parties and billed through local phone carriers.

Those schemes are costly, but one that could potentially be the most expensive telephone scam involves requests that people call a telephone number beginning with an 809 area code, which is located in the Caribbean — outside of U.S. jurisdiction. Callers to 809 numbers, which can be used like 900 numbers, are often put on hold or asked to listen to long recorded messages and then charged as much as $25 per minute. Because 809 may no longer be the only area code used in that manner, callers are advised to find out the origin of unfamiliar codes before dialing.

Pigeon hunting

Clearly, a number of scams are perpetrated by con artists posing as legitimate business people, but many also come from people claiming to be customers. For example, many restaurants have received letters from individuals requesting payment for dry-cleaning bills from spillage accidents or for medical costs from fictitious food-poisoning incidents. And just as many restaurant owners have paid up, even when fraud was suspected, just to keep the peace.

Sarris says he once paid a $15 stop-payment fee on a $16 check he sent to someone who wrote to say he was disappointed with the service he received at one of Sarris’ restaurants. When he realized it was a scam, Sarris decided to act. “It was the principle of the thing,” he says.

Inside the restaurant, customers also can perpetrate a number of scams, including phony slip-and-fall accidents, credit-card fraud and other schemes. However, attempts to defraud a restaurant can be minimized or prevented through strict adherence to written policies and staff training, according to fraud experts and experienced restaurateurs.

Thomas Huhn says operators should make it a rule that employees bring spillage incidents and other customer complaints to the attention of the manager, and a written account should be kept so that records can be checked in the event of a subsequent claim.

Each staff member should have an assigned role in the event of an incident, says Charles Blossfield, corporate officer of special investigations with Kemper Insurance Companies in Long Grove, Illinois. “The manager should identify witnesses or assign a key person to do this. If anything happens in the way of an accident, the manager’s job is to get their names and addresses.” Another worker should gather any physical evidence, while someone else photographs the scene with a disposable camera kept on hand. He also suggests that restaurants perform routine facility inspections to correct potentially hazardous areas.

An inside job

Unfortunately, fraud is not perpetrated solely by outsiders. Dishonest employees are responsible for theft of goods, bogus workers’-compensation claims, embezzlement, credit-card fraud and a host of other crimes against their employers.

“Employees steal because they have a need, an opportunity and a rationalization,” says Huhn. And there are rarely warning signs or overt character flaws that make the person seem untrustworthy. “There’s never been an employee who stole who was not trusted,” he says. Huhn and other security experts suggest that operators use measures such as inexpensive background checks and security cameras to protect themselves.

However, Peter Kilgore, senior vice president and general counsel for the National Restaurant Association, cautions that background checks put restaurants at risk of possible discrimination in hiring, depending on the questions asked. For example, the Equal Employment Opportunity Commission is sensitive to questions about an applicant’s prior conviction record, since convictions may be more prevalent among minority groups than nonminorities.

“When there is concern of theft or some problem and [video surveillance] is a reasonable approach to act as a deterrent, for the most part, courts are sympathetic,” says Kilgore. He advises that those who want to use cameras should set them up in areas where there is not a reasonable expectation of privacy, as there is in such areas as restrooms, and inform employees about the cameras.

Huhn also suggests that managers be trained to look for suspicious activities, like waitstaff taking too much time or writing things down when in the possession of credit cards. He says, “The street value of a credit-card number is about $150 if you know who to sell it to.” To cut down on theft, managers should watch when staff members take out the trash, noting whether any employees are parked near the dumpsters, he adds.

But experts say good internal policies also may be one of the best deterrents to employee fraud. For example, restaurants should maintain strict accounting procedures so that check “padding” or bogus invoices can be discovered. “Have a no-tolerance policy. If you take anything from the company, you’re fired. The company owes that to its honest employees,” says Huhn.

Supply-side schemes

Although the perception may be that fraud is most often committed by shady, anonymous scam artists and dishonest employees, some apparently legitimate businesspeople are also guilty of fraud. This means that operators should be cautious about accepting goods and services from companies unfamiliar to them — especially if the offers are unsolicited and sound too-good-to-be-true.

And be aware that appearances can be deceiving. In some cases, the most professional-looking businesses, complete with office space and well-dressed staff, can be the least legitimate. Such is the case with con artists who perpetrate advance-fee loan scams that require businesses to pay large up-front fees for mortgage financing and then disappear with the money.

Along with fly-by-night scam artists, businesses that restaurants deal with every day — like established suppliers — have also been known to occasionally cheat their customers, by packing 18 pounds of meat or produce into 20-pound cases or shorting large orders by a case or two.

“Restaurants should check and weigh all items at delivery and make sure the invoice agrees with what they got,” says Steve Grover, vice president of technical services for the Association. “The guys who are really sharp about it will walk in in the middle of lunch, so don’t accept deliveries during busy periods. We want to trust people, but until you get to know these individuals, you need to check everything. Restaurateurs who aren’t aware and aren’t looking for fraud get taken much more often than they realize.”

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