An Analysis of Internal Control

Of Pancharatna Paradise

Submitted by

Akshatha Nayak (091202037)

Balachandra Prabhu (091202097)

Mekala Manasa (091202067)

Sweeta Joycin D’souza (091202014)

Introduction to Pancharatna Paradise

Pancharatna Paradise is a family Bar and restaurant which was formely known as Sindhu
Palace. After the take over on October 25, 2006, it was renamed as Pancharatna Paradise.
This restaurant is situated to the opposite of Udupi’s District Court. It seves all types of veg,
non veg (Indian and Chinese cuisine), liqours in restaurant department. This firm also has 27
rooms in their lodging section. Entire restaurant and lodge is spread across four floors. It has
70 employees to look after the activities.

The restaurant is a partnership firm. The partners are Mr. A Santhosh Shetty from Udupi and
Mr. Arun Shetty from Mumbai.

Organisation Structure

Partners

Managing
Director

Kitchen Restaurant Lodge Charted

Manager Manager Manager Accountant

Bar
Suppervisor Captain Accountant
Attender

Main Chef Waiters Waiters Cashier

Chinese Desserts
Indian Chef
Chef Chef

Helpers Helpers Helpers

Internal control for restaurant:

Independent restaurants are often susceptible to fraud and theft. This is because employees
perceive they can get away with it. Employees are "much less" likely to steal from their
employer if they believe they will be caught.

The purpose of internal controls in a restaurant is to increase the actual and, just as important,
the "perceived" likelihood that fraud or theft against the company by an employee or an
outsider will be discovered.

Process of activities in restaurant

The process of a restaurant starts when the customer enters the restaurant. He /she/they
occupy/ies the table when it is available. They decide about the order by looking into the
menu. Once they are done with selection , the waiter approaches them to take the specific
order. He then prepares two KOT(kitchen order ticket) which is very important document
both for delivery of the food and the preparation of bill.

Once the KOT is prepared the original one is sent to the cash counter and the carbon copy is
sent to the kitchen. The main chef screens the KOT and sends it to the respective chef
(Indian, Chinese, Deserts, etc). The food is prepared by the chef with the help of his helpers
and it is send via waiters to the customers. Once all the order is done, the next process is
billing.

The cash counter will have the original KOT of the customers, based on the KOT , it prepares
the bill and sends it to the customer. Who then makes a payment to the cash counter.

In the case of room orders(lodge) , the order will be taken by room boys and KOT will be
prepared by them . Then the process continues as mentioned above. The delivery of the food
is done to the rooms.

They also have home delivery system, wherein the customer calls the restaurant and gives the
order. The order will be taken by the receptionist and based on the distance the charges will
be applied on delivery. The home delivery system is applicable only within the city skirts of
Udupi.
Restaurant Internal Control Checklist  is divided into 3 parts

I. Cash Controls 
II. Accounting & Financial Controls 
III. Purchasing Controls 

I. Cash controls:

Cash is the most liquid asset of the firm. So, it has to be managed carefully. The cashiers are
recruited only if their past records are good.

The restaurant has 1 cash counter which is handled by 1 cashier who takes care of the bills
and receipts and payments to be made.

The cash limit at the counter is Rs. 1,00,000. The cashier checks the cash in hand and informs
about the balance to the accountant. The accountant(Amitha) verifies the amount and if there
is any excess cash, it will be remitted to the bank. The cashier makes the deposit to the banks.

To ensure that the cash is safe, the restaurant has installed CCTV’s, alarms, computer facility
with pass key access, fake note detector.
The accountant gives a surprise visit to cash counter and checks the balance and ensures that
there is no fraud. If there is any mistake, the cashier will be held responsible for it.

All the cheques which are issued are signed by the Managing Director Mr. Santhosh Shetty.

All the payments are approved by the main cashier and the ‘cash paid’ stamp is put on the
bills which are cleared. This ensures that the payments won’t be repeated.

The receipts of cash will be due to:

 Room rent
 Food sales
 Beverage sales
 Other income
The payments will be to:
 Suppliers
 Employees
 Government
 Other payments

Pay-roll control:

There are 70 employees in the restaurant. The employee records are maintained by the
supervisor. The register contains details about

 The attendance
 Time of entry and exit from the restaurant
 Number of days of leave and the reason, the payment to be made for each employee.

The employees (office staff) are paid on a monthly basis. Other staffs such as waiters, bar
attenders, room boys and receptionist are eligible for overtime pay.

Their work hour’s details will be maintained by the supervisor. Pay calculation is made by
accounts department and the payment is made by the cashier.
To ensure the work will be done promptly, the restaurant has installed CCTV’s.

The supervisor keeps track of all the details such as promotion, increments to be made,
deductions due to damage made by the employee. The restaurant does not have option of job
rotation. The employees will have to do their own job and this will help them to specialise in
that particular area

II. Accounting and financial control:

The books of accounts are maintained by the accountant. The books maintained by
Pancharatna Paradise are,

1. Monthly financial statements

2. Monthly bank reconciliations
3. Monthly meals & sales tax returns
4. Annual breakeven analyses
5. All Year-End accounting and corporate tax returns (at no additional cost), including:
o US Corporation or Partnership Income Tax Returns
o State Business Corporation Excise Return

 Fixed asset records & detailed depreciation schedules

 General ledgers & journal

The accountant has to report to the internal charted accountant with all the records. The CA
checks the books and approves it.

The main aspects if inspection will be VAT and luxury tax. The VAT has to be approved by
the CA by 20th of every month and the luxury tax will have to be approved by 15 th of every
month.
To maintain the internal accounts of the firm, a charted accountant is appointed by the
partners. The charted accountant is an independent internal person, who verifies the internal
records either periodically or on surprise basis. Finally he reports the discrepancies to the
Managing Director who in turn inform the partners.

The accountant has the task of supervising the cashier. She has to ensure there is no fraud in
the cash counter. The details about cash will be received from the cashier and the accountant
will report about the cash balance to the managing director on a daily basis.

Every month, records like, cash account, bank account, reconciliation statement has to be sent
to Mr. Arun Kumar ( Partner)

III. Purchasing control:

The main purchase to be made for Pancharatna Paradise is raw materials for kitchen and
liquor for the bar.

The restaurant has a manager(Naveen) to look after the bar and restaurant. The manager finds
out the inventory level by physical inspection, finds out what all materials are required,
quantity of each material, creates a purchase requisition form , decides on the best supplier
and places the order for required quantity.

The suppliers cannot be changed very often because the quality of the food will be depending
on the raw materials. Restaurant is a service based firm so satisfying customers need will be
the main motto. So, deciding on the supplier plays a major role.

After the order is placed, the supplier delivers the goods to the restaurant and the manger
checks the goods by himself. He decides upon where the goods are to be stored.
All the task is done by the kitchen manager. Once the goods are received and the inspection is
done, he sends the bills to the cash counter. The cashier verifies the bill with the help of the
supervisor of kitchen and then makes the payment to the supplier.

Suggestions:

1. The person who verifies the goods also passes the requisition order and purchase
order. This is not advisable because the kitchen manager can place order for his
personal purpose, and there is no person to verify.
2. The restaurant has only one cashier who receives the cash and keeps the record of
cash. This may lead to theft or fraud by the cashier as he is the only person to take
care of cash. So, to avoid such circumstances, the restaurant can appoint a supervisor
for the cashier at the counter and segregate the receipts of cash and records
maintenance to different persons. There must be regular rotation among these two
tasks so as to ensure better safety.
3. The employees working in restaurant of the firm get some cash in the form of ‘tips’
and they keep the tips with themselves rather than sharing it with other departments.
To ensure fair payment the management can pool all the tips amount and share the
amount equally to all the departments of the firm.