Chapter 11 Maintaining and Improving the Revenue Control System Cost Control Chapter 11 Maintaining and Improving the Revenue Control System

Main Ideas Revenue Security External Threats to Revenue Security Internal Threats to Revenue Security Developing the Revenue Security System The Complete Revenue Security System Technology Tools

Revenue Security Errors in revenue collection can come from simple employee mistakes or, in some cases, outright theft by either guests or employees. In its simplest form, revenue control and security is a matter of matching products sold with funds received. Thus, an effective revenue security system ensures that the following formula reflects what really happens in your foodservice operation. The potential for guest, employee, or supplier theft or fraud exists in all of these areas. Product Issues = Guest Charges = Sales Receipts = Sales Deposits =Accounts Payable

External Threats to Revenue Security A guest said to have walked, or skipped a check when he or she has consumed a product but has left the foodservice operation without paying the bill. Another form of guest theft is that of fraudulent payment. This includes passing counterfeit money, bad checks, or most commonly, the use of invalid credit or debit cards. A credit card, is simply a system by which banks loan money to consumer as the consumer makes a purchase. Travel and entertainment cards are a payment system by which the card issuer collects full payment from the card users on a monthly basis. A debit card is a form of guest payment in which the funds needed to cover the user’s purchase are automatically transferred from the user’s bank account to the entity issuing the debit card.

External Threats to Revenue Security If restaurant managers are to ensure that they collect all of the money that are due from payment card companies, they must effectively manage the interface (electronic connection) between the various payment card issuers and their restaurant. The merchant service provider (MSP) plays an important role as the restaurant’s coordinator/manager of payment card acceptance and funds collection. A restaurant accepting payment cards does not actually receive immediate cash from its card sales, but rather it will be credited via electronic funds transfer (EFT) the money it is due after all fees have been paid.

External Threats to Revenue Security All businesses that accept cards – credit or debit - are charged fees for every transaction. Theses fees are called interchange rates, and are a percentage of the value of the transaction. If you agree to accept checks, you will experience some loss. Another method of guest theft you must be aware of is that used by the quick-change artist. A quick-change artist is a guest who, having practiced the routine many times, attempts to confuse the cashier. In his or her confusion, the cashier gives the guest too much change.

Internal Threats to Revenue Security Service Personnel Service personnel can use a variety of techniques to cheat an operation of small amounts of money at a time. Complete revenue control is a matter of developing the checks and balances necessary to ensure that the value of products sold and the amount of revenue received do indeed equal each other. Food operations should require a written guest check recording each sale. Hard copy guest checks should be recorded by number and then safely stored or destroyed, as management policy dictates.

Internal Threats to Revenue Security Service Personnel A method of service personnel fraud is one in which the server gives the proper guest check to the guest, collects payment, and destroys the guest check but keeps the money. For this reason, many operators implement a precheck/postcheck system for guest checks. A user workstation, that is, a terminal primarily being used only to ring orders, may be utilized. The guest check will then be taken to a cashier terminal for settlement. It is important to remember, that even sophisticated computerized systems hold the potential for employee fraud.

Internal Threats to Revenue Security Service Personnel Service personnel may charge the guest for a higher priced item while serving a lower priced one, and then keep the difference in selling price. In some operations, even sales that were originally properly recorded can become a source of theft. This is so because these operations allow changes to be made to previous rounds. A previous round is a service round that occurred before the most recent service total. Not all service personnel are dishonest, of course, and sometimes honest mistakes can be made. This usually occurs when service personnel are required to total their guest checks by hand.

Internal Threats to Revenue Security Defrauding Guests Some techniques include: Charging guests for items not purchased, then keeping the overcharge. Charging the totals on credit card charges after the guest has left, or adding credit card charges and pocketing the cash difference. Misadding legitimate charges to create a higher than appropriate total, with the intent of keeping the overcharge. Purposely shortchanging guests when giving back change, with the intent of keeping the extra change. Charging higher than authorized prices for products or services, recording the proper price, then keeping the overcharge.

Internal Threats to Revenue Security Cashiers Cashiers rarely steal sums directly from the cash drawer because such theft is easily detected. Management can compare the sales recorded by the cash register with the money actually contained in the cash register. If it contains less than sales recorded, it is said to be short, if it contains more than sales recorded, it is said to be over. Consistent cash shortages may be an indication of employee theft or carelessness. If the cash register has a void key, a dishonest cashier could enter a sales amount, collect for it, and then void, or erase, the sale after the guest has departed. Another method of cashier theft involves the manipulation of complimentary meals or meal coupons.

Internal Threats to Revenue Security Bonding is simply a matter of purchasing an insurance policy against the possibility that an employee will steal. If an employee has been bonded and an operation can determine that he or she was indeed involved in a theft of a specific amount of money, the operation will be reimbursed for the loss by the bonding company.

Developing the Revenue Security System An effective revenue security system will help you accomplish the following important tasks: Verification of product issues Verification of guest charges Verification of sales receipts Verification of sales deposits Verification of accounts payable

Developing the Revenue Security System Verification of product issues The key to verification of product issues in the revenue security system is to follow one basic rule: No product should be issued from the kitchen or bar unless a permanent record of issue is made. Documented Product Requests = Product Issues

Developing the Revenue Security System Verification of guest charges When the production staff is required to distribute products only in response to a documented request, it is critical that those documented request result in charges to the guest. Product issues must equal guest charges. Each guest check must be accounted for, and employees must know that they will be held responsible for each check they are issued. Product Issues = Guest Charges

Developing the Revenue Security System Verification of sales receipts Sales receipts refer to actual revenue received by the cashier or other designated personnel, in payment for products served. Both cashier and a supervisor must verify sales receipts. Sales receipts refer to all forms of revenue, such as cash, checks (if accepted), or bank cards. Guest Charges = Sales Receipts

Developing the Revenue Security System Verification of sales receipts In general, there are four basic payment arrangements in use in the typical foodservice operation. They are as follows: Guest pays cashier. Guest pays service personnel, who pay cashier. Guest pays service personnel, who have already paid cashier. Guest is directly billed. Accounts receivable is the term used to refer to guest charges that have been billed to the guest but not yet collected.

Developing the Revenue Security System Verification of sales deposits The deposit slip may be completed by a cashier or other clerical assistant, but management alone should bear the responsibility for monitoring the actual deposit of sales. Management must personally verify all bank deposits. This involves the actual verification of the contents of the deposit and the process of matching bank deposits with actual sales.

Developing the Revenue Security System Verification of sales deposits Embezzlement is the term used to describe theft of a type where the money, although legally possessed by the embezzler, is diverted to the embezzler by his or her fraudulent action. To prevent falsification of bank deposits, you should take the following steps to protect your deposits: Make bank deposits daily if possible. Ensure that the individual making the daily deposits is bonded. Establish written polices for completing bank reconciliations (comparison of monthly bank statements vs. daily deposits). Review and approve bank statement reconciliations each month. Employ an outside auditor to examine the accuracy of deposits on an annual basis. Sales Receipts = Sales Deposits

Developing the Revenue Security System Verification of accounts payable Accounts payable refers to the legitimate amount owed to a vendor for products or services rendered. The authorized purchaser must verify the legitimacy of accounts payable to be paid out of sales deposits. In a revenue system that is working properly, the following formula should be in effect: Sales Deposits = Accounts Payable for Legitimate Expenses

Developing the Revenue Security System Supplier Fraud The typical supplier scam involves goods or services that you would routinely order. These dishonest suppliers take advantage of weaknesses in an organization's purchasing procedures or of unsuspecting employees who may not be aware of their fraudulent practices. Scams initiated by vendors can take several forms such as: phony-invoice scams unauthorized buyer scams the gift-horse scam

Developing the Revenue Security System Phony-invoice schemers know that restaurants sometimes make mistakes or can be careless in accounting, so they prey on these weaknesses. The invoice may be a solicitation in disguise and in very fine print contain the following disclaimer: “This is a solicitation. You are under no obligation to pay unless you accept this offer.”

Developing the Revenue Security System With unauthorized buyer scams, the supplier secures the name of an employee before products are shipped and the restaurant is billed for unordered goods or services. The invoice, which includes an identified employee’s name as the “authorized” buyer, arrives several weeks (or more) later, for three reasons. The inflated price, as much as 10 times what should be paid to a legitimate supplier, is less obvious if the invoice arrives well after the merchandise has been received. The chances are good that the restaurant has used the merchandise before the invoice arrives. The supplier will claim that the time which it could have accepted returned goods has long passed.

Developing the Revenue Security System The gift-horse scam starts when a caller tricks an employee (or manager) into accepting a modest gift or a free promotional item, with a passing reference to merchandise or services. The restaurant then receives overpriced, unordered merchandise, followed weeks later by an invoice that includes the employee's name as the authorized buyer.

Developing the Revenue Security System When an alert foodservice manager protests that he or she did not authorize the purchase and delivery of the overpriced merchandise and thus should not have to pay for it, the supplier will respond in fairly predictable ways. These include: Bullying: The seller argues that the products were ordered. Negotiating: Here the seller expresses sympathy for the “misunderstanding” that has occurred and offers to settle the bill at a reduced (but still inflated!) price if payment is made immediately. Charge for Returning: In this case, the seller offers to allow the restaurant to return the merchandise but only if they pay a significant restocking or shipping fee.

Developing the Revenue Security System You can protect your revenue from vendors who would attempt to defraud you. Here are steps you can take: Know your rights Assign designated buyers and utilize purchase orders at all times Check the documentation before paying bills Train your staff

The Complete Revenue Security System The five key principles of a revenue security system are as follows: No product shall be issued from the kitchen or bar unless a permanent record of the issue is made. Product issues must equal guest charges. Both the cashier and a member of management must verify sales receipts. Management must personally verify all bank deposits The authorized purchaser must verify the legitimacy of accounts payable to be paid out of sales deposits.

Technology Tools Software and specialized hardware now on the market that can help in this area included those that: Maintain daily cash balances from all sources, including those of multi-unit and international operations. Reconcile inventory reductions with product issues from kitchen. Reconcile product issues from kitchen with guest check totals. Reconcile guest check totals with revenue totals. Create over and short computations by server, shift, and day. Balance daily bank deposits with daily sales revenue and identify variances. Maintain database of returned checks. Maintain accounts receivable records. Maintain accounts payable records. Interface back office accounting systems with data compiled by the operation's POS system. Interface budgeting software with revenue generation software. Create income statements, statements of cash flows, and balance sheets.