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Restaurant operators reviewing internal controls checklist.
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Internal controls checklist: 7 strategies for restaurants

October 10, 2024 / 7 min read

Restaurant margins face constant pressure, even when business is thriving. As an owner or operator, a strong culture of internal controls from the top down is critical to the ongoing success of your business. Start with this internal controls checklist.

Operating a restaurant is challenging. Constant pressure from changing customer demands, food and labor costs, tighter margins, and increased competition — to name just a few factors — elevate the need for a comprehensive strategy to manage risk and drive a prosperous business forward. With the long list of considerations for operating a successful restaurant, internal controls can easily be overlooked — and that critical oversight can cost you.

Strong internal controls are important for any business, but restaurants come with unique considerations given the limited number of nonoperational personnel and, in the case of a multiunit operator, sprawling operations. Without strong internal controls, a restaurant could be subject to fraud, duplicate payments, revenue leakage, or other unchecked vulnerabilities. With so much at stake, restaurant owners and operators must prioritize robust internal controls; include these seven strategies in your internal control checklist to manage risk and ensure your business thrives for years to come.

1. Strengthen internal accounting controls with segregation of duties

A sound internal control strategy should include segregation of duties to minimize opportunities for fraud or operational error by a single individual. For example, the same person shouldn’t order goods, receive goods, and authorize payment for goods. Likewise, the same person shouldn’t operate the register and reconcile cash and credit cards to the point-of-sale (POS) at the end of the night. Even if most of the sales are credit card sales, the risk that your staff could provide an unauthorized free or reduced meal still exists.

If there aren’t enough nonoperating personnel (i.e., store managers and assistant managers) on staff, enlisting a trusted employee to perform a function is the next best option. Ask a server, cook, or host to assist in one task in the chain. Alternating responsibilities among staff from time to time is also effective. If that isn’t a viable option, owners or district managers can randomly audit the records to ensure everything is in balance as an additional check in your internal control process.


Healthy business risk starts with proper segregation of duties

2. Manage controls over cash: Do’s and don’ts

Proper cash management, primarily in the store, but also in the bank, is critical for restaurant owners and operators.

For effective cash management, you should:

Conversely, avoid these common missteps in your cash controls:

3. Monitor and report financial results

Your best defense against fraud, duplicate payments, and revenue leakage is constant monitoring of your bank account and financial results. Reviewing the bank transactions online daily helps identify potential irregularities on a real-time basis. Additionally, reviewing store profit and loss statements weekly can provide insight into potential irregularities. For example:

Overall, the store manager shouldn’t be surprised by any result on the profit and loss statement and should be able to easily explain any anomalies.

4. Administer staff training on internal accounting controls

Proper training of employees helps ensure they understand how to perform functions properly and sends an early message that you’re serious about internal controls. This training should be preemployment and provided at least annually. Training should also be required following a significant change in procedure (e.g., a new POS system). Additionally, documenting your controls in an employee manual can help solidify policies and procedures in an easily referenced resource for all staff.

5. Safeguard IT systems from data breaches

Your POS, computers, and other technology in the store should be configured by an IT professional to ensure the proper access, controls, and safeguards are in place. Strong IT controls are also critical to thwart potential cybersecurity threats to your restaurant operations. Access should only be granted on an “as-needed” basis, and nobody in the store should have access to the entire system. 

Immediately cut off access for any departing employees, but especially the store manager. If the store manager departs, make sure to disable any authority the manager may have with the bank accounts, credit card, payroll provider, or any vendor.

6. Maintain controls over physical inventory

At minimum, you should take physical counts of goods at least monthly. Liquor should ideally be inventoried nightly. Restaurant owners or operators can also leverage restaurant management software packages with recipe features that can predict food usage and cost based on sales to help manage inventory. Proper inventory management will help you manage costs, minimize food waste, and identify potential theft or losses.

When receiving food orders, ensure a three-way match: require a signature on receiving documents for food received and compare totals to your invoice and food service portals. If you observe any discrepancies between the documentation, follow up with your vendor immediately.

7. Establish an anonymous tip hotline to the restaurant owner

Establishing an anonymous hotline that empowers employees — not just store managers — to report theft or abuse directly to you gives you an effective method for preventing and identifying fraud before it becomes a potentially debilitating issue. Emphasizing a no-retaliation policy for whistleblowers and offering a cash reward for certain information are other ways to encourage employees to report abuse or irregularities. This also creates an environment of trust and shared responsibility among your staff.

A strong business strategy requires strong internal controls

Strong internal controls not only protect your business and enhance operational efficiency — they’re a critical part of your business strategy. The key to success starts with an inventory of gaps and exposure in your control environment. Are you equipped to prevent fraud, or even detect it? Are your staff aware of common best practices for their various responsibilities, and crucially, are they following them? Do you have consistent visibility into the financials of your business? Answering these questions will put you on the path to a stronger, more secure business and from there, help foster a culture of accountability and trust among your staff.

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