Maintaining and Improving the Revenue Control System

Chapter 11Maintaining and Improving the Revenue Control SystemMain IdeasRevenue SecurityExternal Threats to Revenue SecurityInternal Threats to Revenue SecurityDeveloping the Revenue Security SystemThe Complete Revenue Security SystemTechnology ToolsRevenue SecurityErrors 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 revenue security is a matter of matching products sold with funds received.Revenue SecurityAn effective revenue security system ensures that the following five formulas reflect what really happens in a foodservice operation:Documented Product Requests = Product IssuesProduct Issues (by the kitchen)= Guest ChargesTotal Charges = Sales ReceiptsRevenue SecurityAn effective revenue security system ensures that the following five formulas reflect what really happens in a foodservice operation: (cont.)Sales Receipts = Sales (bank) DepositsSales Deposits = Funds Available to Pay Legitimate Expenses (called Accounts Payable)The potential for guest, employee, or supplier theft or fraud exists in all of these areas.Revenue SecurityRevenue security problems can be one of two types:External threats to revenue securityInternal threats to revenue securityExternal Threats to Revenue SecurityBoth guests and employees can be threats to revenue.A guest is 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.This type of theft is not generally present in, for example, a quick-service restaurant (QSR) where payment is collected before, or at the same time, the food is given to the guest. External Threats to Revenue SecuritySteps to Reduce Guest Walks, or Skips1. If the custom of a restaurant is that guests order and consume their food prior to the operation receiving payment, servers should be trained to present the bill for food or beverages promptly when the guests have finished.2. If a facility has a cashier in a central location in the dining area, that cashier should be available and visible at all times.External Threats to Revenue SecuritySteps to Reduce Guest Walks, or Skips (Cont.)3. If the facility operates in such a manner that each server collects for his or her own guest’s charges, servers should be trained to return to the table promptly after presenting the guest’s bill to secure a form of payment.4. Managers should train employees to be observant of exit doors near restrooms or other areas of the facility that may provide guests the opportunity to exit the dining area without being easily seen.External Threats to Revenue SecuritySteps to Reduce Guest Walks, or Skips (Cont.)5. If an employee sees a guest leave without paying the bill, management should be notified immediately.6. Upon approaching a guest who has left without paying the bill, the manager should ask if the guest has inadvertently “forgotten” to pay. In most cases, the guest will then pay the bill.External Threats to Revenue SecuritySteps to Reduce Guest Walks, or Skips (Cont.)7. If guests flee the scene, the manager should note the following on an incident report:a. Number of guests involved.b. Amount of the billc. Physical description of the guest(s)d. Vehicle description and license plate number if possible.e. Time and date of the incidentf. Name of the server(s) involvedExternal Threats to Revenue SecuritySteps to Reduce Guest Walks, or Skips (Cont.)8. If the guest is successful in fleeing the scene, the police should be notified. In no case should staff members or managers be instructed to attempt to physically detain the guest. The liability that could be involved should an employee be hurt in such an attempt will be far greater than the value of a skipped food and beverage bill.External Threats to Revenue SecurityIn addition to skipping a bill, another form of external 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 a cashier.External Threats to Revenue SecurityAnother 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 a system by which banks loan money to consumers as the consumers make a purchase.External Threats to Revenue SecurityTravel 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 SecurityIf 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.External Threats to Revenue SecurityThe chance for a foodservice employee to defraud the customer through credit card skimming is always a concern.Skimming is the theft of payment card information used in an otherwise legitimate transaction. It is typically done by a dishonest employee, such as a server or bartender, who has easy access to a guest’s payment card information.External Threats to Revenue SecurityInternal Threats to Revenue SecurityService 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.Internal Threats to Revenue Security Servers can misrepresent the amount they charge guests.Food operations should require a written guest check recording each sale. A guest check is a written/printed record of the items guests purchase and how much the guests were charged for them.Paper guest checks should be recorded by number and then safely stored or destroyed, as management policy dictates. Internal Threats to Revenue Security Modern point of sale (POS) systems assign unique numbers to each guest check they create.This POS feature eliminates duplicate guest check fraud and is one of the main reasons even the smallest of foodservice operations should utilize an electronic POS system.Internal Threats to Revenue SecurityAnother 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.Internal Threats to Revenue SecurityA user workstation, that is, a terminal records the items ordered and then displays the order in the production area. In some systems, the order may be printed in the production area.Not all service personnel are dishonest but POS systems are especially designed to prevent dishonest employees from committing theft and fraud.Internal Threats to Revenue SecurityIt is important to remember that even sophisticated POS systems hold the potential for employee fraud. If a cashier is responsible for the collection of money, several areas of potential fraud can exists. 1. The cashier may collect payment from a guest but proceed to destroy the guest check that recorded the sales. 2. The cashier may fail to finalize a sale recorded on the precheck, while pocketing the money.Internal Threats to Revenue SecurityOpen checks are those that have been used to authorize product issues from the kitchen or bar, but that have not been added to the operation’s sales total.Internal Threats to Revenue SecurityIn addition to theft of an operation’s financial assets, the hospitality industry affords some employees the opportunity to defraud guests as well. Some techniques include:Charging guests for items not purchased, then keeping the overcharge.Changing the totals on credit card charges after the guest has left, or entering additional credit card charges and pocketing the cash difference.Internal Threats to Revenue SecurityMisadding 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 SecurityCashiers 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.Internal Threats to Revenue SecurityIf the POS system 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.It is important to remember that even good revenue control systems present the opportunity for theft if management is not vigilant or if two or more employees conspire to defraud the operation.Internal Threats to Revenue SecurityBonding refers to the process 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 helps accomplish these tasks: Verification of product issuesVerification of guest charges Verification of sales receipts Verification of sales deposits Verification of accounts payableDeveloping the Revenue Security System In an ideal world, a product would be sold, its sale recorded, its selling price collected, the funds deposited in the foodservice operation’s bank account, and the cost of providing the product would be paid for, all in a single step. Rapid advances in the area of computers and “smart” cards are making this a reality for more foodservice operators each day. Developing the Revenue Security SystemThe five-step process of revenue security is as follows:Product Issues = Guest Charges = Sales Receipts = Sales Deposits = Funds Available for Accounts PayableDeveloping the Revenue Security SystemVerification of product issuesThe 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 IssuesDeveloping the Revenue Security SystemVerification of guest chargesWhen 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 ChargesDeveloping the Revenue Security SystemVerification of sales receiptsSales 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), and bank card charges.Total Charges = Sales ReceiptsFigure 11.8 Sales Receipt ReportDeveloping the Revenue Security System The five basic payment arrangements used in most foodservice operations are:Guest pays cashier.Guest pays at the table.Guest pays service personnel, who pay cashier.Guest pays service personnel, who have already paid cashier.Guest is directly billed.Developing the Revenue Security System Verification of sales depositsThe 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 SystemEmbezzlement is the term used to describe employee theft where the embezzler takes company funds he or she was entrusted to keep and diverts them to personal use.Falsification of bank deposits is a common method of embezzlement. Developing the Revenue Security SystemTo prevent embezzlement managers should: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 deposit records).Review and approve all bank statement reconciliations at least once each month. Developing the Revenue Security SystemChange combinations on safes periodically and share the combinations with the fewest employees possible.Require all cash handling employees to take uninterrupted vacations on a regular basis so that another employee can assume and uncover any improper practices.Employ an outside auditor to examine the accuracy of deposits on an annual basis. Developing the Revenue Security SystemIf verification of sales deposits is done correctly and no embezzlement is occurring, the following formula should hold true:Sales Receipts = Sales DepositsDeveloping the Revenue Security SystemVerification of accounts payable Accounts payable refers to the legitimate amount owed to a vendor for the purchase of products or services rendered. The individual initially authorizing purchase from a vendor should verify the legitimacy of the vendor’s invoice before it is paid.Developing the Revenue Security SystemIn a revenue system that is working properly, the following formula should be in effect:Sales Deposits = Funds Available for Accounts PayableDeveloping the Revenue Security SystemManagers can help protect their revenue from vendors who would attempt to defraud them by:Knowing their rightsAssigning designated buyers and utilizing purchase orders at all timesChecking relevant documentation before paying billsTraining affected staff membersSpecial Revenue Collection Situations When they are direct billed, creditworthy guests are mailed or e-mailed a bill for the value of their purchases.Some operations allow for extensive direct billing:1. House accounts2. Banquet billingsAccounts receivable is the term used to refer to guest charges that have been billed to the guest but have not yet been collected. The Complete Revenue Security SystemThe five key principles of a revenue security system are: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.The Complete Revenue Security SystemThe five key principles of a revenue security system are: (cont.)Both the cashier and a member of management must verify sales receipts.Management must personally verify all bank depositsThe individual authorizing the purchase should verify the legitimacy of the vendor’s invoice before it is paid.The Complete Revenue Security SystemIt is possible to develop and maintain a completely manual revenue control system.However, when properly selected and understood, technology-enhanced systems are a powerful ally in the cost control/revenue security system.Technology ToolsProtecting sales revenue from external and internal threats of theft requires diligence and attention to detail. Software and specialized hardware on the market helps managers as they:Maintain daily cash balances from all sources, including those of multi-unit and international operations.Reconcile inventory reductions with product issues from kitchen.Technology ToolsReconcile 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.Technology ToolsMaintain database of returned checks.Maintain accounts receivable records.Maintain accounts payable records.Maintain records related to the sale and redemption of gift cards.Interface back office accounting systems with data compiled by the operation's POS system.Technology ToolsInterface budgeting software with revenue generation software.Create income statements, statements of cash flows, and balance sheets.It is important to note that interfacing (electronically connecting) the various individual hardware and software programs selected for use in an operation is extremely helpful.