CASE 3.6
BURANELLO’S RISTORANTE
Synopsis
Employee theft is a widespread and serious problem facing the multitude of small businesses
that play such a critical role in the U.S. economy, which is the key reason that phenomenon is a focal
point of several of the “internal controls” cases that I have written, including this one. This case
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Case 3.6 Buranello’s Ristorante 205
Buranello’s Ristorante—Key Facts
2. Michael Barnes, Buranello’s general manager, believed that Aaron O’Neil, one of the
restaurant’s three shift managers, was the individual most likely stealing from the business.
4. With the approval of Buranello’s owner, Barnes set up a sting operation to test O’Neil’s
honesty.
5. At the close of business one evening, Barnes intentionally understated the cash receipts reported
7. When O’Neil didn’t report the excess cash, Barnes assumed that he had stolen it and contacted
the local police who subsequently arrested O’Neil.
9. O’Neil didn’t return to work at Buranello’s but one month later filed a “malicious prosecution”
10. The judgment was later overturned by an appellate court that ruled because Buranello’s had
“probable cause” to file theft charges against O’Neil, it could not be accused of malicious
prosecution.
206 Case 3.6 Buranello’s Ristorante
Instructional Objectives
1. To demonstrate that employee theft is an important internal control issue for many, if not most,
small businesses.
Suggestions for Use
Even novice accountants can appreciate the importance of providing controls over cash and cash
processing activities. This case allows students to discuss control risks related to cash that are
present in a setting with which most of them will be very familiar, namely, a restaurant. An
important point to make when covering this case is that small businesses often do not have sufficient
resources to operationalize some of the most basic internal control concepts, such as adequate
segregation of key functional responsibilities. Nevertheless, there is nearly always some cost-
effective measure that a small business can implement to mitigate, to some degree, a given internal
Suggested Solutions to Case Questions
1. Listed next are specific internal control weaknesses evident in Buranello’s operations followed
by a brief discussion of the given control risks. Your students will likely come up with additional
control weaknesses, most of which will be closely related to one of these items.
a. Weak control environment: Michael Barnes’ attitude toward his “back office” responsibilities
suggests that he is not setting a good “tone at the top” for Buranello’s. His subordinates, no doubt,
Case 3.6 Buranello’s Ristorante 207
c. Ineffectiveness of daily sales reconciliation procedure: By Barnes’ own admission, this
important control activity does not appear to be accomplishing its objective; that is, this procedure
may actually be used as a tool to conceal rather than uncover cash shortages.
f. Lack of accountability for cash (can’t trace cash shortages to one individual): This control
weakness is closely related to the three previous items. This weakness may actually encourage or
induce employees to steal cash.
g Leaving daily cash deposits on business premises overnight: This policy exposes cash receipts
2. Here are proposed remedial measures for the control weaknesses identified in the suggested
solution to case question #1, including a discussion of their apparent cost-effectiveness.
a. Other than hiring a new general manager, there is not an easy “fix” for this control weakness.
One suggestion: Marta Giordano could have a heart-to-heart discussion regarding the importance of
internal controls with Michael Barnes or appoint a proxy (such as a representative of Buranello’s
accounting firm) to do so. Would this measure be cost effective? The monetary cost of this measure
would be effectively zero, while the resulting benefits could be enormous. (This latter assertion
stems from the fact that the control environment is easily the most important element of an internal
control system. Improving that feature of a control system can have pervasive positive consequences
for the remaining internal control elements.)
208 Case 3.6 Buranello’s Ristorante
in the case, there are several reconciliation templates that are used within the restaurant industry.
The size and overall complexity of a restaurant’s operations apparently dictates which particular
template is most appropriate.
f. If the three previous internal control weaknesses are properly resolved (in particular item “c”),
then this problem should be mitigated to some degree, if not a significant degree. The benefit of
remedying this internal control weakness makes the suggested solutions to the three previous
weaknesses even more cost-effective.
g. Placing the daily deposit in the overnight deposit box at the bank would eliminate the risk that
an overnight break-in would result in the theft of the deposit (granted, there is some risk that the shift
manager could be robbed late at night on the streets of Boston!). Cost-effective? Difficult to assess.
In all seriousness, the risk that the shift manager may be robbed late at night on the way to the bank
may result in the cost of this solution being greater than the expected benefits.
3. Consider converting this question into a group project in which small groups of students visit
different local restaurants and develop a list of internal controls evident within each one. Students
could then compare, contrast, and discuss their findings in class. Recognize that the control
activities observed by students will likely vary as a function of the size and sophistication of the
restaurants they visit. Nationally franchised restaurants, for example, typically have more
formalized control procedures than local, family-owned restaurants. Note: prior to such a group
project, you might want to remind students of the three overarching internal control objectives:
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d. A member of the management staff asking patrons (during or after their meal) if
everything was cooked to their satisfaction: repeat customers are the lifeblood of
most businesses so restaurant managers have a strong incentive to ensure that their
customers leave happy. [Note: This control measure is linked to the “efficiency and
effectiveness” of operations objective.]
e. “Sneeze shields” over salad bars: restaurants are subject to a litany of health
department requirements with which they must comply (these vary by state, of
course)—the overarching internal control objective here would be to comply with
applicable laws and regulations.
4. In responding to this question, students should first attempt to place themselves in Barnes’
position. Recognize that Barnes was both infuriated and extremely embarrassed by the recurring
cash shortages. [Note: unfortunately, there was no indication in the legal opinion as to the absolute
size of the cash shortages.] Someone who is desperate is more inclined to use desperate measures,
which is why he apparently came up with the idea of a sting operation. Was the sting operation
“appropriate”? This is a good question to ask your students to discuss and debate. But, again, it is
difficult to answer that question as a bystander. No doubt, Barnes, himself, would be the best
individual to provide the response to that question. (You may want to point out that the sting
operation actually accomplished its intended objective, namely, ending the abnormally large cash
shortages.)