Cheeni Kum : A Fraud by Chef

Mr. Rao, the Chief Internal Auditor of a five star hotel chain was stunned to hear Anil, a young audit executive, who wanted to expose various incorrect practices that were being carried out by the chef-in-charge of one of the hotel properties of the chain. The Chief Internal Auditor and General Manager of the property told him to shun the findings as the chef had been selected as best chef of the year for achieving record favorable food cost percentage. The chef-in-charge's performance was evaluated based on food cost percentage, a relative measure of Food & Beverage (F&B) cost and F&B revenue

Disappointed Anil from the co-sourcing IA firm finally decided to make a note of these findings in the permanent audit file for future reference when he found out that there was no way he could blow a whistle.

The inventory system of the chain provided for outlet-wise ordering and food costing. The chef-in-charge ordered for the high food cost items in name of the outlet, where sales margins were higher. In such cases no accounting had been done for inter outlet transfers and thus benefit of incorrect indenting were transferred to inefficient outlet so as to meet the targeted outlet-wise food cost percentage.

Many times chef-in-charge had been issued with high value raw materials on basis of post dated requisition by the storekeeper to be charged in subsequent periods to avoid reporting of adverse food cost percentage during current appraisal period.

Calculation of food cost was being done after adjusting cost of hospitality checks i.e. check raised for free food served. Thus, food cost percentage was calculated incorrectly, measuring efficiency of the operations of the outlet. Evidences were found of incorrect adjustment of wastage, spoilage and leakage in food cost through hospitality checks. This was done to keep these costs out of the books to achieve a better food cost percentage.

Thus, a non deserving chef had been selected for the award based on the KPI which was manipulated and miscalculated.

Many hospitality players nowadays are implementing latest POS and material management system but they lack proper management accounting practices. With increased empowerment they have achieved innovation but gaps exist in understanding of evolution of control system. It is not enough that the management just sees, touches, smells, tastes and hears the relationship between input and output or oversees the behavior of various personnel. A structured monitoring, end-to-end analysis of completeness, activity based management is a must to add value.