GoodFood

GoodFood is an organization that runs two restaurants located in the same building: Royal, with 100 seats, and Premier, with 400 seats. These restaurants each have a clearly separated entrance, with reception, wardrobe, etc. Each restaurant has its own manager, who is responsible for running the restaurant and its financial results. Under the leadership of the general manager, the following departments are in place: - Purchasing (4 employees) - Storeroom and cold store (6 employees) - Central Kitchen (25 employees) - Accounting department, including computer department (6 employees) - Financial department, including Central Cash Desk (4 employees) - Household service (cleaning, maintenance, etc.)

Royal
Royal is an exclusive à la carte restaurant, which has recently been awarded a Michelin star. The menu changes weekly and depends on the season. To dine at Royal, both individual guests and groups need to book in advance. Groups can also hire the entire restaurant. Depending on the size of the group, the time, and the day of the week, groups can get a discount, or may need to pay a surcharge on the regular menu prices. Groups that hire the entire restaurant always need to pay a surcharge. Royal accepts cash payments, credit card payments, and payments on account. For payments on account the payment term is 30 days. Royal’s attendants are employed on a permanent basis (25 employees in total).

Premier
Premier is a restaurant where one can choose from 40 standard dishes and 10 special dishes. The standard dishes are available throughout the year. In general, the special dishes are on the menu for at most 14 days. The prices for the standard dishes are the same throughout the year. The prices for the special dishes are largely dependent on the (mostly seasonal) purchasing prices of the ingredients. Several of the dishes are also combined in a number of three-course and five-course menus. The prices of the menus are about 15% lower than the total of the prices of the constituent dishes. Premier only accepts cash payments, or payments by equivalent cash cards. Premier employs a small number of waiters on a permanent basis. The other waiters work part-time, and are on call.

Purchasing
Ingredients (meat, poultry, fish and other ingredients like vegetables, fruit, etc.) are purchased from a number of specialized domestic suppliers. Meat, poultry and fish can be stored in the cold store for two weeks without loss of quality. Especially considering Royal’s status, the other ingredients can be used for two days maximum. Therefore, the storeroom has a limited size.

Central Kitchen
The Central Kitchen is managed by a chef. The chef is also responsible for the culinary aspects of the restaurants’ management, like the menu composition and the methods of preparation of the dishes.

For Royal the dishes are always freshly prepared, right after the guests have placed their orders with the attendants. For Premier the dishes are prepared a day in advance and stored in the cold store until the stocks in the cooled display cases in the restaurant need to be replenished. After the orders have been taken the meals are quickly heated up by means of micro-wave ovens.

Accounting and automation
GoodFood has a computer system with sufficient capacity, with screens in every department. Both Royal and Premier have Point-of-Sale (POS) screens.

Required: 1. How can GoodFood be classified in the typology of organizations?

The typology of GoodFood could be described as an organization without a dominant flow of goods. Within this main classification of organization we could classify it as a service organization with a limited flow of goods. This type of organization has two different variants. GoodFood is covered at: limited flow of own goods.

2. a. What risks inherent to this type of organization apply to GoodFood?

|Risks type org. |Exposure |Internal controls (assign. 3) |
|Insufficient quality of ingredients. |Customer complaints and loss of reputation. |Independent quality checks of ingredients by a quality inspector and the |
| | |chef de cuisine. |
| | |Implementation of a customer satisfaction measurement system. |
|Fresh products. |Loss of value of ingredients. |Adequate facilities to store perishable ingredients. |
| | |Daily consultation between purchaser and chef de cuisine bout perishable |
| | |ingredients. |
| | |Implementation of a destruction procedure for rejected ingredients. |
| | |Analytical review of the quantity of rejected ingredients. |
|Insufficient inventory of |Inability to serve meals ordered by customers|Adequate inventory planning of ingredients. |
|ingredients. |resulting in customers complaints and loss of|Periodic reviews by controller or head of accounting department of customer |
| |revenues. |orders that were not executed because of insufficient inventory of |
| | |ingredients. |
| | |Purchase of ingredients from reliable vendors. |
|Misalignment between customer orders |Customer dissatisfaction and loss of assets |Supervision by manager/ owner of misaligned orders. |
|and meals prepared. |because of meals returned to kitchen. |Documentation of returns to kitchen. |
| | |Appropriate guidelines for personnel about careful acceptance of orders. |
| | |Implementation of a customer satisfaction measurement system. |
|Incomplete documentation of orders by|Loss of assets and revenues. |Segregation of duties between order acceptance, preparation of meals and |
|waiters. | |recording of all activities. |
| | |Observation by manager/ owner of order documentation by waiters. |
| | |Attach value to bill or informing guests they should receive bill on |
| | |payment. |
| | |Implementation of a code of conduct regarding order documentation. |
| | |Analytical review by controller or head of accounting department of revenues|
| | |and order-size per waiter. |
|Theft of ingredients by personnel. |Loss of assets. |Minimize entry to the storage facility by other than storage personnel. |
| | |Documentation of all cash receipts of ingredients and deliveries to kitchen.|
| | |A system of granting discharge when ingredients are transferred between |
| | |storage facility and kitchen. |
| | |Periodic inventory counts of ingredients. |
|Theft of cash. |Loss of assets. |Cash needs to be stored in a locked cash drawer. |
| | |Daily cash-counts. |
| | |Observation by manager/ owner of cash collection by waiters. |
|Incomplete cash collection by |Loss of assets. |Observation by manager/ owner of cash collection by waiters. |
|waiters. | |Analytical review of cash deficits per waiter. |
|Relatively simple sales transactions.|Personnel usually perform more than one duty.|Use of a cash register, which records all transactions. |
| | |Segregation of duties between waiters and kitchen. |

Table 1: risks inherent organizations with a limited flow of own goods (Vaassen, E., 2011, p. 282-283) b. What risks are specific for GoodFood?
|Specific Risks applying to GoodFood – |Exposure |Internal controls (assign. 3) |
|Royal | | |
|Sensitivity to seasonal influences |Inability to serve meals wanted by customers resulting|Share weekly changes with customers in advance for a wide period |
|(menu changing). |in customers complaints and loss of revenues. |(e.g. quarterly schedules) |
|Possibility of hiring entire restaurant|sales may be loosed when the entire restaurant is |Ensure informing (new) customers about the protocol and let |
| |booked, resulting in customers dissatisfaction |(known) customers know when the restaurant is booked (e.g. via |
| | |the website) |
|Discounts (Royal: groups and Premier: |Forgone revenues |Management guidelines for allowing discounts (discount tables) |
|course menus) | |Sample-based detailed checks on allowed discounts according to |
| | |sales invoices |
|Surcharges |(indirect) loss of revenues: Customers |Pre-inform customers about the level of prices in correlation |
| |dissatisfaction, because of paying extra for the same |with the amount of people. |
| |goods, resulting in customer dissatisfaction | |
|Creditworthiness of customers |Invalid sales and hence loss of revenues |Procedures for checking customer creditworthiness |
| | |Adequate documentation of AR |
|Uncollectability of AR |Uncertainty about cash position of revenues |Folluw-up procedures |
| |Loss of revenues |Urging customers to pay on time by giving discounts for prompt |
| | |payment (and fines for overdue payments) |
|Wrong vendor choice* |Opportunity costs |Adequate vendor information about good ordered and received, |
| | |goods sold and delivered and market expectations. |
|Shifting of inventories (ingredients) |Incompleteness of revenues is concealed. |Simultaneous inventory counts. |
|and revenues (orders) between | | |
|locations.* | | |
|Shop within a shop |Loss of revenues |Segregation of duties between sales and purchasing (both |
| | |authorization) |
|Relatively unpredictable product |Decision what and when to buy is critical to the |Market Research |
|demands* |continuity of the business. |Expectations on the basis of history data |

Table 2: Specific risks for GoodFood (Royal)

Risks marked with * are also applicable on the Premier restaurant.

|Specific Risks applying to GoodFood - |Exposure |Internal controls (assign. 3) |
|Premier | | |
|Sensitive to seasonal influences |(indirect) loss of revenues: Customers dissatisfaction, |Periodically share price changes with customers in advance for |
|(prices of special dishes) |because of the lack of solid prices, resulting in |a wide period (e.g. quarterly schedules) by updating the week |
| |customer dissatisfaction |menu (online). |
|Cash card payments |Decreasing personnel motivation by receiving less tips |Simplify and encourage giving tips by showing the tips basket |
| | |near the cash machine |
|Part-time and on call workers |Undermanning resulting in longer waiting times (customer|- planning shifts ahead on a long term |
| |complaints) |- using backup personnel |
|In advance perpetrating of meals |Increased perishability when expected demand > realized |- use of realistic plannings |
| |demand |- use not perishable ingredients |
| |Quality loss (vitamins, taste and structure) |- use well performing cooling systems |

Table 3: Specific risks for GoodFood (Premier)

3. Discuss the necessary administrative and organizational conditions for GoodFood.

Necessary administrative and organizational conditions for a restaurant like GoodFood can be divided into three main categories, which will be discussed below: 1) Segregation of duties: o See table 4 for the prescribed (segregated) functions o Strict supervision by the general manager (on personnel) and chef (kitchen).

2) Budgeting: o Annual masterbudget (and some constituent budgets), separated for both restaurants, including: ▪ Sales budget; ▪ Purchase budget; ▪ Cost budget (personnel, accommodation, depreciation and ingredient costs); ▪ Cash budget.

3) Management Guidelines: o Prices for meals and drinks (price list); o Use of discounts and surcharges; o Level of re-order points for ingredients and drinks; o Storage of perishable ingredients and related destruction procedures; o Access to ingredients by employees; o Selection of suppliers of ingredients; o Order acceptance and dress code by waiters; o Maximum amount of cash in cash drawers; o Acceptance of all various forms of cash (incl. tips); o Cash procedures and the deposit of received cash into a safe; o Health and hygiene regulation; o Dealing with customer complaints. 4. Describe the required internal controls (see table 1, 2 and 3), including the system of segregation of duties (see table 4), adequate procedures, reconciliations, and analytical review procedures. Make sure to distinguish between the situation at Royal and that at Premier.

a) Segregation of duties:
|Officer |Department |Task |Duty |
|Purchase clerk |Purchasing department |Purchasing ingredients |Authorization |
|Quality inspector |Receiving department |Checking the quality of received |Checking |
| | |ingredients | |
|Storage clerk |Storage department |Safeguarding ingredients |Custody |
|Waiter |Waiting staff department |Taking customers’ orders |Authorization |
|Cook |Kitchen |Preparing meals |Execution |
|Chef de cuisine |Kitchen |Deciding on the menu |Authorization |
|Waiter |Waiting staff department |Serving meals |Execution |
|Waiter |Waiting staff department |Receipt of customers payments |Authorization |
|Cashier |Cash department |Safeguarding cash |Custody |
|Cash disbursement clerk |Cash disbursement department |Payment of vendor invoices |Authorization |
|Accounts payable clerk |Accounts payable department |Safeguarding accounts payable |Custody |
|Accounting clerk |Accounting department |Recording transactions |Recording |
|Controller |Accounting department |Checking transactions |Checking |
|Manager |Management |Managing all processes |Checking/ overall |
| | | |authorization |

Table 4: Segregation of duties in restaurants (Vaassen, E., 2011, p. 284)

b) Adequate procedures: o Adequate facilities to store perishable ingredients; o Adequate inventory planning of ingredients; o Adequate documentation of AR; o Adequate vendor information about good ordered and received, goods sold and delivered and market expectations.

c) Reconciliations: o Inventory ingredients at t0 + purchases -/- ingredients delivered to kitchen = inventory ingredients at t1. o Ingredients delivered to kitchen * standard (recipe) = meals prepared by kitchen = meals sold. o Cash at t0 + sales (meals sold * price per meal) -/- purchases (ingredients) = cash at t1.

d) Analytical review procedures: o Analytical review of the quantity of rejected ingredients; o Analytical review by controller or head of accounting department of revenues and order-size per waiter; o Analytical review of cash deficits per waiter.

5. Describe the information requirements of this company’s management. o Revenue per restaurant; o Number of customers per restaurant; o Sales report per restaurant; o Liquidity forecasts per restaurant; o Usage reports of ingredients; o Turnover rate of ingredients; o Customer satisfaction; o Employee satisfaction; o Working hours per employee; o Total discount that is given.