The local business is a small chain restaurant located inside a shopping mall, which offers a mix of American and Mexican cuisine. The business uses around 150-200 square meters of space with the kitchen at the back portion separated from the dining segment with a wall and a swinging door. The business has around 7 employees manning the dining section of the restaurant with one employee manning the entrance, the manager, a cashier and four other employees, which are considered as the waitstaff. The business has a single entry/exit point, which is manned by one employee for the purpose of seating the guests/diners.
As observed, there were at least three opportunities for fraud, the first is that all of the dining segment employees, writes down the orders of the guests/diners. The manager and the cashier were seen to have been assigned to receive credit card or cash payments. This means that there are two individuals in-charge of the cash and credit card slips. One scenario is that they can manipulate their sales by overstating the sale for day 7 by adding sales from day 2 or day 3. The reason for the potential fraud is when the owner has an excessive emphasis of achieving higher profits (Roehl-Anderson and Bragg 122). This means that the manager and the cashier can collude to improve their sales performance by manipulating the sales receipts to improve their performance during slow days. One way to prevent this is by placing control points such as the use of information technology systems for food and drink ordering and bill output. The problem with this is that management may be unwilling to invest in the better controls (Roehl-Anderson and Bragg 123) due to the expense and thereby increasing the potential risk for fraud.
Another scenario for potential fraud is that all of the restaurant employees are overseen by the restaurant manager. Since the manager is seen to be autonomous, the manager can dictate potential fraudulent acts that can be detrimental to the restaurant owner. This is considered by Roehl-Anderson and Bragg (123) to be a high-level fraud indicator since the upper management in this case is the restaurant manager. This means that the potential for fraud is considered to be very high since the manager has absolute authority over the restaurant. Unfortunately, in this case, Roehl-Anderson and Bragg (123) believes that there is no effective control that can be placed to contradict this potential fraud. Hayes et al. (289) suggest that the owner can personally oversee the operation of the restaurant. Unfortunately, the restaurant owner may live and operate another restaurant in another city (Hayes et al. 289) resulting to full dependence on the manager.
In the third scenario, the restaurant can retain their profitability by short changing their diners/guests. This can be done by making the food portions given to the diners/guests smaller than the restaurant standard. The reason is that the manager can minimize their costs while retaining their profits by using a smaller food portion, which is dependent on the discretion of the manager. The problem with this approach is that the restaurant brand can suffer with the decisions of the manager, especially with regards to food quality and quantity. The effect is a declining perception of the restaurant brand by its diners/guests resulting to decreased patronage. Roehl-Anderson and Bragg (123) believes that management decentralization is a laudable approach, but in order to prevent potential damage to the restaurant brand, the manager must still be controlled by upper management/owner as a form of control oversight (Roehl-Anderson and Bragg 123).
The three potential scenarios for fraud opportunities explained above are considered to be prevalent in the restaurant businesses. However, upper management can control or minimize these potential fraud scenarios by implementing numerous controls such as the use of information technology systems, management oversight, and owner control. Unfortunately, the ultimate success or failure of these controls are primarily dependent on the management and its employees.
Potential Fraud Observation and Manager Discussion
The restaurant manager very kindly allowed a meet up to discuss the potential cases of fraud in their operation. The first scenario of sales manipulation is countered with the use of numbered food and drink order slips, a pad of which are assigned per waitstaff. The use of the numbered food and drink order slips is primarily to ensure that food and drinks to be served are in the sequence of food and drink orders. There are always three copies of the food and drink order slips, one of the waitstaff, one for the kitchen crew and the last is to be submitted to the cashier at the end of the day/shift. The first copy is to ensure that the food and drinks to be served is completed by the waitstaff while the second copy clarifies the correct food to be cooked by the kitchen crew. The third copy is to confirm that the all the food and drinks ordered are not only served, but paid by the guest/diner. The third copy is the supporting document of the diner/guest payment as well as the total food bill and a signed credit card slip or cash payment, which are included in the restaurant’s total daily sales slip.
The third scenario of short changing the food and drinks given to the diners/guests can be mitigated by portion controls. The restaurant commissary can already separate each serving portion by individually wrapping the meat. This can also be done to the side dishes since the commissary is already in charge of not only prepping the food but also raw material ordering. The task of the restaurant’s kitchen crew is to cook the food to the specifications of the commissary. Food portion control therefore cannot be manipulated by the kitchen crew or the restaurant manager.
The most difficult scenario is the autonomous power of the restaurant manager since he is the one in charge of the day-to-day operations. However, in order to counter this potential fraud upper management usually shuffles the restaurant assignments of the manager. This prevents potential cases of fraud due to the autonomous power of the restaurant manager since the succeeding restaurant manager will have a different operating style. In case restaurant assignment shuffling is not regularly implemented, then the wait staff has the option to contact upper management. The reason for this is that upper management has as its option allowed to change the restaurant location assignments of the waitstaff. This means that upper management is still in control of the restaurant operation while the restaurant manager is only tasked with its daily operations.
The three potential cases of fraud were countered by the implementation of upper management policies that are not easily determined by a casual observer. The reason for this is that a casual observer will not become familiar with the operations of a restaurant unless the guest/diner is a regular patron. The potential cases for fraud observed by a casual observer are considered to be easily done in other restaurants except for the observed restaurant. After the discussion of potential cases of fraud, the restaurant manager thanked this casual observer for the valuable feedback and bids the casual observer to come back and sample new items on their menu, which will be available next month.
Works Cited
Hayes, Rick, Roger Dassen, Arnold Schilder, and Philip Wallage. Principles of auditing: An introduction to international standards on auditing, 1999. New York: Prentice Hall, 2005. Print.
Roehl-Anderson, Janice M. and Steven M. Bragg. Controllership: The Work of the Managerial Accountant. New Jersey: John Wiley & Sons, 2004. Print.
