How to Detect POS Theft and Fraud on a Square POS System

Square POS has become one of the most popular point-of-sale platforms for restaurants, boutiques, and small businesses — offering sleek hardware, easy setup, and transparent pricing. But while Square simplifies payment processing, it doesn't make you immune to POS theft and employee fraud . Even the most modern POS systems rely on human behavior and management oversight. If your team handles cash, issues refunds, or manages discounts, your Square account can still be manipulated — often without you noticing. This article explains how to detect POS theft and fraud on Square , what patterns to watch for, and how to strengthen your internal controls. Why POS Theft Happens — Even on Modern Systems POS theft isn't a software flaw — it's a human control issue . The National Retail Federation (NRF) reported U.S. retail shrink at 1.6% of sales in 2022 (over $112 billion in losses), with 29% attributed to internal theft by employees. The Association of Certified Fraud Examiners (ACFE) found that median occupational fraud losses reach $145,000 per case , and typical schemes last 12 months before detection . That means even small-scale fraud — a few fake refunds, a couple of "no-sale" cash grabs — can quietly drain thousands before you notice. How Employees Steal Using a Square POS Square's flexibility is great for honest operators — but it also creates opportunity for manipulation if you don't review your data carefully. Here are the most common internal theft schemes on Square POS: 1. Fake Refunds An employee issues a refund to their own card, a friend's card, or a digital wallet. In Square, refunds can be processed without the original card being present unless you've disabled that permission. 2. Void-After-Sale Transactions A legitimate sale is processed, then voided once the customer leaves. The cash is pocketed, but your sales report shows "voided" — balancing the drawer. 3. Discount Abuse Employees apply unauthorized discounts or 100% off items. In restaurants or bars using Square, this is a common theft channel disguised as "comped" orders. 4. Cash Skimming Square tracks sales digitally, but cash transactions still rely on manual input. If an employee records less cash than received — or skips entry altogether — money disappears undetected. 5. Inventory-Linked Theft For businesses tracking stock through Square for Retail, employees may create "fake refunds" or "manual adjustments" to hide stolen merchandise. How to Detect POS Theft on Square The good news: Square gives you more data than most small-business systems. The key is knowing where to look — and reviewing patterns, not just totals. 1. Use the Square Dashboard's Detailed Reports Go to Reports → Sales Summary → Employee Sales . Filter by: Voided sales Refunded transactions Discounted items Watch for: High refund percentages by a specific employee Frequent post-transaction voids Unusually large discounts on full-price items If one employee's refund or void percentage is 2–3× higher than others, that's a red flag. 2. Monitor "Cash Drawer Events" In Square, each "cash drawer event" — like opening, closing, or manual opens — is logged. To review: Reports → Cash Drawer → View Events Look for: Excessive "No Sale" events Drawer openings without matching transactions Cash drawer discrepancies between declared and actual amounts Regularly compare Square's drawer report to physical cash counted during closing. 3. Review Refund Audit Logs Square logs every refund with: Employee name Time stamp Payment method Linked sale (if applicable) If you see refunds issued after hours , to new cards , or without a linked sale , investigate. 💡 Tip: Set up email alerts for refunds above a threshold (e.g., $100) so you can review them in real time. 4. Correlate Transactions with Inventory Reports In Square for Retail , go to Inventory → History and filter by "adjustments" and "returns." If inventory quantities drop but corresponding refunds don't appear in the sales log, someone may be manipulating counts to cover theft. 5. Compare Reports Across Time Thieves often rely on small, repeated actions. Use Square's filters to: Compare employee refund rates week over week Review time-of-day patterns (e.g., spikes in voids after close) Identify high-risk time slots when managers aren't present Even one recurring pattern — like "refunds every Sunday night" — can reveal a hidden scheme. 6. Use Exception-Based Reporting Tools Square's built-in analytics are strong, but they don't perform exception-based reporting (EBR) out of the box. Platforms like POSDetective integrate with Square to automatically flag anomalies: Refunds without matching sales Excessive "no-sale" opens High void or discount activity per employee Sales without receipts Inventory adjustments with no associated transaction EBR helps you focus on who to investigate instead of manually combing through thousands of transactions. 7. Pair POS Data with Cameras If your store uses CCTV, align timestamps from Square transactions