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Where's the Profit?
Target your controls where profits are slipping out the door
By Allen Kutchins
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The establishment is full,
turns are good, everyone loves the place ‑ but where is the profit? The
Internal Revenue Service offers a variety of tax qualified profit sharing
plans. However, what if one of your employees decides to establish his own ‑
without you or the IRS knowing about it? This article will highlight some of
the classic and not so classic opportunities for your loyal employees to share
improperly in your profits. The front of the house provides two major physical
areas where profits can vanish ‑ the bar and the dining room. The bar, often
the "welcoming center" of your establishment, offers the creative swindler
‑several ways to tap your till:
Bringing in his or
her own inventory. Does your bartender arrive at
work each day with a backpack or work out bag? There might be more inside than
you imagine. Perhaps they are supplementing your inventory. A fifth of liquor
has 25.6 ounces; with the average pour at 1.5 ounces, that is 17 drinks per
bottle. At $5 per drink, that is $85 of your money not being rung up.
Watering your
inventory. Adding six ounces of water to a fifth
creates a 20 percent watering down effect. This represents four drinks at 1.5
ounces. Approximately $20, which is not rung up. The same result can be
achieved by shorting the pour to the customer.
Comps. Think your
comps are too high? Maybe these were actual sales entered as comps with the
money being pocketed. What is your policy on complimentary approvals? How
often do you reconcile from the drinks sold as shown on the register with the
actual liquor inventory?
Drinking buddies.
Does the bar seem crowded, but the receipts low? Is
your bartender entertaining all of his or her friends? What is the company
policy on comps? Who approves them?
How can you protect yourself?
Consider using a secret shopper more frequently. Institute a policy about
serving complimentary drinks. Rotate bartenders and compare receipts for the
same night in different weeks. Review how you are stocking to par for better
control of liquor. Reconcile the drinks sold (converted to ounces) to the
change in your liquor inventory. Inventory your liquor on a regular basis.
The dining room offers the
largest chance for intentional theft and unintended errors:
Wine with that meal?
Recently I ate at a restaurant for the first time.
When the check came, we were only charged for one of the two bottles we ordered.
This sort of oversight obviously can have a dramatic impact on your gross
margins. What is your procedure for wine procurement and making sure it is rung
up?
Making your regulars
happy. You send out a complimentary appetizer or
dessert to a frequent patron. The comp is entered, and the customer is happy.
But what about the steak that was not prepared properly and was adjusted? Did
the adjustment occur before or after the check was presented? What controls do
you have for voiding checks? Without good controls, adjustments are easily
pocketed.
Silverware, china and
glassware. Are your replacement costs running
high? Maybe an occasional garbage check is worth the effort. What you
find in the trash might surprise you. Think about the controls on
your POS system and who is authorized to approve voids and
complimentary items. No POS system? Now is the time to think about
one. Some of the back‑of‑the‑house issues mirror the bar area.
Others give rise to opportunities for collusion that might involve
the accounting department or vendors:
Portion size.
Are your 16‑ounce steaks 14.5 ounces? Is there an extra
portion out of each cut? Where are these going? Are the cooks taking them home
or selling your prime to the restaurant down the street or to their friends?
Consider purchasing pre‑sized portions, which are easier to control and should
save you labor costs.
Are you receiving what
you are paying for? Is the person ordering food the
same individual checking it in? If food costs seem high, maybe you are being
shorted on delivery. Perhaps your staff has a deal with the delivery driver or
vendor to split the shortages.
Where are your goods
stored? Made a big purchase at a special price, but
lacked room to store it on location? What controls do you have in place to limit
access to the off‑site facility? How often do you check to make sure the
inventory is there? Does your existing insurance cover goods off‑premises? The
more inventory locations you have, the harder it is to maintain firm control.
Returned goods.
When a wrong item is delivered, do you receive a credit for
it? Or is the refund pocketed? Make sure that your system properly tracks the
issuance of vendor credits for returns, over charges or other adjustments.
Know your vendors.
Do you use a purchase order system? Do you match all
delivery tickets to the invoices? It is often easy to set up a fake
vendor. Invoices are submitted; paperwork is created for the receipt and the
invoices paid. The larger the organization, the easier it is to create a bogus
vendor.
The almighty time
clock. How many times did an employee get paid for
vacation? Do you think you are controlling overtime, but always seem be
confronted with more than you thought there should be? Is there an extra
employee? When is the last time you personally distributed payroll checks? Do
you compare the number of checks or direct deposit stubs to the actual number
shown in the payroll reports? Who is approving overtime? Is everyone clocking in
for himself or herself, or is one of their buddies punching them in? There have
been vast improvements in time‑keeping systems, and their costs have been
reduced. This is an area where it is fairly easy to improve controls.
Cash.
Cash is so fluid, so easily made to disappear. Do you have
regular shortages on check out? How are you doing tip outs? Do you have to get
more cash because your charge card business is large and you never have enough
cash to settle up with the wait staff?. Consider paying the tips through normal
payroll. This might even bring your tip reporting in line. That means fewer
problems with the IRS. A change like this can greatly reduce your cash needs.
A good accounting system
dictates separation of duties. That means the same person ordering inventory
should not be receiving the goods and paying the invoices. As is the case at the
bar, consider reconciling expensive items (steaks, lobster, etc.) from the
register to inventory. Review your kitchen par levels and how items are
requisitioned. Review your insurance coverage for such things as bonding of cash
handling, off‑site storage and your inventory levels. Wine has been a good
investment of late, and the replacement costs on your inventory may be higher
then you thought. A rotation of vendors is also a good technique. It can keep
the old ones honest, ensure you a secondary source of supply and test check the
pricing and quality of existing suppliers.
We are all working hard. Our
common goal is to provide a better‑than‑expected dining experience for our
customers and a good environment for our team members while making respectable
return on investment. Hope these ideas will help you achieve some of your
financial goals. 0
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