Internal controls can help minimize risk and reduce the likelihood of fraudulent activities taking place. Fraud is a prevalent issue with many restaurants, making internal controls a must-have. Below are some of the essential basic internal controls that can help your restaurant run smoothly and prevent theft or fraudulent activities from taking place.
Cash is, of course, something that needs internal controls to keep safe and accounted for. It is essential to pay close attention to the numbers and make sure everything is accounted for.
You shouldn’t have just one person counting the drawer at the end of the day and making deposits. If a single person is doing both it leaves your business vulnerable to an individual taking advantage of the opportunity to siphon off cash between the period when they count the drawer and deposit the money. Reconciliation between the reports from point-of-sale and bank deposit reports will help to catch any possible misstatements.
It is also wise to limit the number of people with the ability to sign checks on behalf of your business. As more people gain access to checks the likelihood of employees abusing their power goes up, making it easy for an employee to write a check for something that isn’t necessary.
Random drawer counts should also be implemented in order to make sure you have the correct amount of money in the drawer. All cash should be secured in the locked register during business hours and in a safe during non-business hours.
Financial Statement Review
The financial statements for a restaurant are an extremely important and useful tool for identifying possible fraudulent activities. It is a smart business habit to reconcile all financial statements at least once a month. This means actually digging into all ledger accounts and making certain that all numbers are correct. It is easy for something to hide within one of your accounts and go unnoticed if no review is taking place.
You should also have an individual sign off on all manual journal entries. This is an easy place for employees to commit fraud and have it go unnoticed because it can be disguised as a normal transaction.
Store monitoring is a process the general manager should be regularly performing as an internal control. It is important to review and look at all store invoices to make sure you are not overpaying vendors or paying a vendor that doesn’t need to be paid.
Accounts payable is a very common area for fraud because an employee in this position could potentially set up a fictitious vendor and misappropriate cash. Segregation of duties can be implemented to eliminate this risk.
Inventory should also be closely monitored in order to make sure that all records match up with what is actually on the shelf. Watch food costs to ensure they are not higher than they should be. It is easy to write a check for ingredients and not pay attention to the price. Additionally, using a blind copy to record inventory and physically counting the inventory regularly are good internal controls.
Sales reports should also be reviewed often to make sure that all performance is true and not misstated.
Making sure each employee has specific access rights based on their position and level within a restaurant is an easy and rewarding control. If access rights are not proper to each employee’s position, it opens your company up to the possibility of fraud. Employees should only have computer and asset access for the things they need to do their specific job and nothing more.
Internal controls are essential processes for all restaurants. The number of internal controls a business could possibly implement are far and wide-ranging. It’s important to determine and implement the measures that will help your restaurant accomplish its goal of minimizing risk and reducing the likelihood of fraudulent activities taking place. SLD offers a comprehensive range of services to help its clients identify and address business challenges and opportunities for improving efficiency and profitability.