Fraud Protection with the Controller

Why inventory management is a management tool

Stock management is not a control tool against employees – it is a corporate management tool. Structured inventory management creates transparency between:

planned consumption (recipes, calculations)
booked sale (POS data)
actual stock (inventory)

Only through these three levels can robust controlling be achieved.

The controller highlights deviations – not to assign blame, but to manage risk.

What we mean by "loss"

Loss is any negative difference between:

Theoretical target stock (calculated from the cost of goods according to recipes and cash register entries)

and the

actual stock (determined by counting)

Example:

1,000 items sold according to POS
Mathematically required consumption: 1,000 units
actual consumption: 1,150 units
→ 15% unexplained difference

This difference can have various causes:

unbooked own consumption
authorised or unauthorised invitations
operating error

recipe inaccuracies

Spoilage / Breakage

theft of goods

Not booking sales with cash withdrawals

Without structured goods management, these causes remain indistinguishable.

Why tax audits often fail to uncover the problem

Generous recipe tolerances or inaccurate calculations can mask differences. A typical example:

In the case of soft drinks, simply not taking ice cubes into account can conceal up to 10% of the cost of goods sold. A 0.2 litre drink with ice actually contains only approx. 0.18 litres of base product. Imprecise calculations may provide short-term relief, but in the long term they obscure structural losses.

Do the maths:

Purchasing goods × mark-up calculation = theoretical turnover

Compare this with your actual sales.

The difference corresponds to the entrepreneurial risk area.

Even if only 50% of this difference was actually sold but not collected, we are talking about significant losses in earnings.

Reality from practice

Since the introduction of the first controller programme (1989), we have observed average deviations in the double-digit percentage range across all sectors – before structured merchandise management is introduced.

Important:

The average does not say anything about your business, but it does show that a lack of transparency is not an isolated case.

Risk assessment: Structural risk factors

If you rely solely on loyalty, a blind spot will develop in the system. The risk of loss arises from structure – not from character.

The more often you answer "No" to any of the following questions, the higher your structural risk is:

Are all sales recorded via a cash register system without exception?
Can own consumption be recorded systemically?
Can invitations be clearly documented?
Are regular inventory counts carried out (at least monthly)?
Are mark-ups and recipes deliberately defined and controlled?
Are orders communicated exclusively via structured systems?
Are price variants fully reflected in the POS?
Are goods dispensing and cashiering separated organisationally?
Are discrepancies such as incorrect change actively reported?
Are breakages, spoilage and complaints regulated and documented?
Are internal subsequent deliveries booked?
Are all delivery notes checked and countersigned?
Is merchandise secured against unauthorised access (guests, cleaning staff, service providers)?

Control is not mistrust. Control is organisational quality. If several of these points are not met, any structured measure will have a positive economic impact – often more significant than expected.

Further topics: Choosing the optimal inventory management

Best practice: Organising recipes and tolerances correctly

1. Management classification

Recipes are not a calculation aid. Recipes are the controlling reference value for your goods controlling. Only when theoretical consumption is precisely defined can actual consumption be objectively assessed. That means:

Vaguely defined recipes do not lead to fewer differences – they lead to less insight. Controlling thus loses its control function.

2. Recipes must be precise – not "practical"

Recipes should correspond as closely as possible to your actual specifications:

actual portion size
actual glass size
actual ice addition
actual set
actual waste

Recipes are not an educational tool. They are the mathematical representation of your operational reality. The more precise the recipe, the more meaningful the inventory difference. In practice, a correct check almost always shows a slight negative deviation. That is normal – and healthy.

3. Tolerances do not belong in the recipe

A common mistake is to incorporate tolerances directly into the recipe – for example, by deliberately increasing the amount of ingredients used. Why this is incorrect: Because tolerances are an assessment of results – not a consumption specification.

The correct procedure is as follows:
Recipe = exact target definition

Tolerance = management assessment in the controlling report. This is the only way to keep differences visible and manageable. If you factor tolerances into the recipe, you shift the problem to the structure.

4. Controlling is leadership – not a threat

Control must not be used as an instrument of mistrust. When you threaten to "take control", you often reach exactly the wrong people:

Responsible employees feel under general suspicion.
Opportunistic employees deliberately test the limits of the system.

The goal is not intimidation, the goal is an efficient, loyal team. Excessive control can even have a negative impact on sales:

An employee who tilts their head when pouring to look precisely at the calibration mark does not appear confident – but rather uncertain. This affects the atmosphere and guest experience. It is therefore the task of management to combine structure and ease.

These include:

Concept-compliant dosing aids
suitable glass sizes
practical workflows
systematic training
positive performance incentives

If free pouring is part of your quality promise, then organise it professionally:

training
measurement exercises
feedback
Recognition for consistently good performance

Technical dispensing systems are not a panacea. They are also subject to physical fluctuations (temperature, viscosity, pressure conditions). Precision comes from organisation – not just technology.

5. The most common controlling mistake: retroactively "adjusting" recipes

In practice, we repeatedly observe the following mechanism: in order to reduce recurring inventory discrepancies, recipe ingredients are gradually increased.

Example:

Instead of 2 cl, 2.2 cl is deposited.

Later 2.3 cl.

Then 2.4 cl.

The goal is not better control – but more reliable inventory results.

The problem:

You can 'calculate' such a structurally incorrect setup by taking inventory. The figures appear plausible – but can no longer be controlled. Controlling becomes cosmetic.

6. How to recognise manipulation or structural errors

Typical indicators:

Individual items regularly show positive inventory balances.
Differences appear to be permanently "too minor", even though there is operational unrest.
Cost of goods sold ratio improves mathematically without operational change.
Recipes have been adjusted several times over a long period of time.

A consistently positive stock result is just as suspicious as a consistently negative one. Both indicate a structural shift.

Summary

Recipes define the truth of your system.
Tolerances define your assessment.

If you mix these two levels, you lose control.

Clean recipes enable:

objective inventory evaluation
clear allocation of responsibilities
fair management of staff
reliable cost of goods sold ratios
reliable calculation

Controlling does not begin with inventory. Controlling begins with the recipe.

Further topics: Directory: Best Practice

Best practice: Evaluate differences using purchase or sales value?

In practice, inventory differences are usually valued at purchase price (PP). This is understandable from a commercial law perspective, but often falls short from a business management perspective. The crucial question is: what economic damage do you want to measure?

Purchase price: cost of goods sold perspective

The valuation of the cost price only considers the material loss of the goods. It answers the question: "How much did this product cost me?"

This view is correct when it comes exclusively to stock valuation and accounting representation. However, in many cases it underestimates the actual economic impact.

Sales value: earnings potential

A valuation at retail value (RV) raises a different question: "What turnover should this merchandise have generated?" Because if there is a discrepancy, it is not just merchandise that has disappeared – potential turnover has also been lost. This applies in particular to cases such as:

unbooked own consumption
undocumented invitations
unbooked sales

In these situations, the economic loss is usually closer to the sale value than to the purchase price. Because:

Procurement costs have already been covered
Personnel and operating costs run independently
Marketing and fixed costs have been incurred.
Calculation based on contribution margins

The lost contribution margin is thus significantly higher than the pure cost of goods sold.

Why this consideration makes strategic sense

The valuation at market value is not used for tax accounting purposes, but for internal control purposes. It makes visible:

which sales potential is structurally lost
Which items have a high profit margin despite low purchase costs (e.g. coffee, soft drinks)
how strongly differences influence the operating result

Items with low cost of goods but high margins are systematically underestimated when considering purchase prices. VK assessment shows a more realistic picture of the impact on results here.

Tax reality vs. management control

Naturally, losses must be properly recorded and documented. Internal valuation at sales value does not replace valuation under commercial law. It complements them. On the contrary:

A company that systematically records and actively analyses differences documents organisational quality. When it comes to examinations, transparency is not a risk – lack of transparency is.

Entrepreneurial core

The aim is not to "extrapolate" losses. The aim is to correctly classify their economic significance.

Purchase price answers the question:

"What's missing in the warehouse?"

Sales value answers the question:

"What is missing from the result?"

Both perspectives are legitimate.

For operational control, the second is often more meaningful.

Personal classification

Your perspective is entirely understandable from a business management point of view, but many people view goods losses as too technical because they think in terms of results. This is not a special path – it is a broader perspective. You just have to separate them clearly from tax assessment.

The control closing report works with sales prices in the standard version, but you can switch it to purchase prices (in the latter case, recipes are broken down and your conversion to purchase units is used – everything should be correct).

Further topics: Directory: Best Practice

Repeating control conclusions – responsibility and system logic

The recording of closing balances for the preparation of a control statement can be delegated operationally. It does not have to be purely a management task. What matters is not who counts – what matters is that counting is embedded in an organised chain of responsibility.

When teams know that inventories are regularly checked and validated, deliberate false entries are generally not made. Discrepancies would be noticed in subsequent layers or during central evaluation – provided that transparency is established. Control works through systematic approaches, not mistrust.

When a control closure must be repeated

In practice, it may happen that a control closure with incorrect inventory values has been recorded, for example due to:

transposed digits
incomplete count
data entry error
incorrect units of measurement

In such cases, it is necessary to correct the conclusion. It is important to follow the correct sequence:

The original control statement is being processed.
The head office or back office generates the corresponding inventory lists.
The control closure is then carried out again for the same reporting date with corrected values.

The aim is not to "correct the result" but to correct the flow of goods so that the system works with real stocks again.

Systemic boundaries

However, repetition is only useful within a limited period of time. The more:

sales
rebookings
deliveries
internal movements

The more transactions have taken place since the original closing, the more the portfolio history is overlaid.

At a certain point, retroactive correction is no longer technically justifiable, as too many influencing factors have come into play.

Organisational safeguards

In order to prevent abuse or unclear backdating, the period for permissible control closures may be limited. The Maximum period field can be used to define how many days back a check may be recorded or corrected. This limitation:

protects the system history
increases discipline within the organisation
prevents subsequent "clean-ups"
ensures clear responsibility for timelines

Depending on the operating concept, this period should be chosen deliberately.

principle

A repeated control closure is a corrective tool – not a control instrument. It serves the purpose of technically correct inventory management, not subsequent result optimisation. Structured limitations and clear responsibilities ensure that the system remains resilient.

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