Security concerns related to the purchasing function.

Control process must guard against several types of theft that are possible during the purchasing process. owners and managers of any type of food service operation must develop and implement purchase specifications that define quality requirements. In their absence, there is less assurance that value goals can be attained.

Kickbacks. In several common types of kickbacks, the buyer for the food and beverage operation works in collusion with someone from the supplier’s company. The kickback can be money or gifts. Either way, the owner of the operation is the loser.

To best control this type of theft, the owner/ manager can routinely review invoices and ask such questions as, “Why are so many products purchased from the same supplier?” the manager can also periodically review the selection of suppliers and solicit price quotations randomly to ensure that prices paid are the best—or, at least, competitive—for the quality and quantity of products being purchased. Another tactic is to require the use of competitive bids.

In another kickback scheme, the delivery invoice is padded by adding items that were not received, or it is increased by adding unreasonable charges for handling or some other service. this scheme works well when the same employee does the receiving and the purchasing. therefore, if it is possible to use a system that separates the purchasing and receiving tasks, this type of kickback could be prevented.

Fictitious Companies. Purchasing personnel can steal by setting up a nonexistent company that submits invoices for products never received. managers can periodically review the selection of suppliers by examining the names of payees. Unless the manager is familiar with the supplier, checks should never be sent to companies with only post office box addresses.

Reprocessing Invoices. Suppliers may try to send an invoice to the food and beverage operation for processing a second time. To avoid this type of theft, operations need an internal system to verify which invoices have not been paid and to cancel invoices when they are paid.

Delivery Invoice Errors. Intentional arithmetic errors, short weight or counts, wrong quality, and similar “mistakes” can cost the operation money. Management or office personnel must check all arithmetic on invoices and statements (even when they are computer-generated) and follow proper receiving practices such as those reviewed later in this chapter to catch these mistakes. Whether they are innocent mistakes or fraud, the bottom line is the same: the operation loses money.

Credit Memo Problems. When products are not delivered or when deliveries are short of the quantities ordered, a request-for-credit memo should be issued to reduce the original delivery invoice by the value of the items not delivered. the supplier should then issue a credit memo to adjust the account. Managers and receiving staff should never accept a “we’ll deliver it later and not charge you” comment from the truck driver. A request-for-credit memo should be written and attached to the delivery invoice. The manager should also alert the property’s accounting department to ensure that the supplier properly processes the credit to the buyer’s account. Normally, credit memo forms in multiple parts are provided by the delivery person. It is helpful for the property to also have blank copies of a generic form available in case the delivery person does not have copies.

Quality Substitutions. Quality substitutions occur when a price is quoted for the proper quality item but a lower-quality item is delivered. Proper receiving practices can help prevent paying more for a lower-quality product. Brand or label substitutions are also possible if receiving personnel are not familiar with products ordered. If alert staff do recognize product problems, the supplier can “allege” a mistake and exchange the products for those of proper quality. This problem occurs more frequently than some purchasers may suspect and requires close attention to both purchasing and receiving duties.

Purchaser Theft. Purchasers might practice a variety of other thefts: purchasing for their own use, reciprocal purchasing for their own benefit, or purchasing products wholesale with the intention of reselling them to selected employees or to others. Using an effectively designed purchasing system can help reduce these types of potential problems.

There is a gray area of purchasing ethics in which purchasing personnel may be offered gifts or free meals, invitations to parties, or other inducements designed to increase the supplier’s business. Buyers must put the property first and make decisions based on what is best for the property rather than for themselves. Many food and beverage operations develop codes of ethics that, in part, detail policies about what purchasers can (and cannot) do in their relationships with suppliers.