Question

Harlan Venture Inc. (HV) operates a restaurant named Harlan's in Toronto. The shareholder, Stephen Painter, is concerned whether the system and controls in place at the restaurant are appropriate to monitor and control the operations of the restaurant and to make sure that employees don't steal. He provides the following information:

Restaurant operations

The restaurant manager's duties include looking after reservations, seating customers, and managing the restaurant's operations.

Servers take the customer orders and enter them into a system that uses off-the-shelf restaurant software that HV purchased. Each order is temporarily stored in the “orders placed file” and is transmitted to the kitchen staff, who receive a printed order. This order is the basis for preparing the meal. The kitchen staff throws out the order forms when the meals are picked up by the servers.

The server instructs the system to prepare the customer bill. The customers pay by cash or by credit card (HV accepts Visa, MasterCard, American Express, and Diners Club). The server is to enter the payment amount and method of payment into the system. The amount of the tip is to be entered as a separate item for both cash payments and credit card payments. The order in the “orders placed file” is transferred to the “orders completed file” only when the server enters the customer payment information.

At the end of the day, the restaurant manager prepares cash envelopes, which contain the tips for the servers and kitchen staff based on the amount of the tips recorded in the system. The cash in the tip envelopes is taken from the cash payments made by customers. He then clears the system for any orders that remain in the “orders placed file.”

The system generates a daily report of revenue recorded by method of payment, and HST collected. This report is used by the part-time accountant to make the entries in the general ledger.

The restaurant manager prepares the daily bank deposit, which includes the credit card vouchers and the cash to be deposited. A cash float of $250 is maintained in the sales register. He takes the deposit home and makes the bank deposit first thing the next morning.

HV receives monthly statements from the credit card entities that report the amount of the credit card sales processed by the entity and the fee charged by the entity. The bookkeeper enters these expenses in the general ledger.

The bartender is responsible for all sales of wine and liquor. He provides wine (by the glass or bottle) and drinks to the servers, who are not allowed access to these items. The on-site wine is stored behind the bar and, for expensive wines, in the basement wine cellar. He takes inventory of the wines and liquor weekly and places the appropriate purchase orders.

Catering services

HV provides both in-restaurant special function catering and out-of-restaurant special function catering (for example, at a private residence). The price of the function is based on the menu cost plus a markup of 60 percent.

The customer is billed in full for the function after it is completed and when the customer indicates satisfaction with HV's performance by sending in the “customer satisfaction form.” Revenue is recognized at the time of billing. Discounts are authorized by the restaurant manager if the customer deems HV's performance to be less than satisfactory. The amount of discounts given to date has been minimal. Billings are often made as much as 60 days after the date of the function. As at May 31, 2020, 10 functions with a contract value of $50,000 have been completed and as yet not billed. Forty functions have been billed.

Required

Based in the above, identify five control weaknesses. For each weakness, state the implication and make an appropriate recommendation to improve the control weakness.

Answer 1