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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Buranello’s Ristorante—Key Facts
174 Case 3.6 Buranello’s Ristorante
1. Buranello’s recently faced a problem that plagues many, if not most, small businesses, namely,
employee theft.
3. The key evidence pointing to O’Neil was the fact that the cash shortages began occurring shortly
after he was hired by Buranello’s.
5. At the close of business one evening, Barnes intentionally understated the cash receipts reported
6. The next day, O’Neil discovered the excess cash not reported on the deposit slip; O’Neil hid the
cash in Buranello’s safe because he believed that he was being “set up.”
8. After being taken into custody, O’Neil told the police that he hadn’t stolen the excess cash but
instead had hidden it in Buranello’s safe; after finding the cash, the police released 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.
Instructional Objectives
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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-
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,
perceive that he does not place a sufficient emphasis on his control-related responsibilities, which
176 Case 3.6 Buranello’s Ristorante
e. Failure to review daily sales reconciliation worksheets on a timely basis: An effort should be
made to identify and then investigate significant cash shortages as quickly as possible so they can be
properly addressed and investigated. Since Barnes allows the daily sales reconciliation worksheets
to “pile up” on his desk, this control objective is not being accomplished.
f. Lack of accountability for cash (can’t trace cash shortages to one individual): This control
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
Case 3.6 Buranello’s Ristorante 177
d. Solution: develop a standard template or legend for shift managers to reference when
addressing unusual reconciling items. This template would briefly indicate exactly how to deal with
any given type of reconciling item. Cost-effective: absolutely.
e. Here again, the issue is changing Michael Barnes’ mindset. The cash shortages experienced by
Buranello’s should reinforce to him the need and importance of “clearing” the daily sales
reconciliation worksheets as quickly as possible. Cost: effectively zero. Benefit: significant.
h. Although the “sting” operation implemented by Barnes was apparently legal (see solution to
case question #4), several online websites for small businesses suggest that before employing such
measures (or related measures) business managers should first contact an attorney to determine that
no laws would be broken by the given plan and that it would not violate employees’ civil rights. I
would suggest that this control procedure would likely be cost-effective. In the Buranello’s case, the
trial jury award was eventually overturned but the business still incurred significant legal expenses.
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
that each coupon is used only once.
b. Visual inspection of large bills (such as $50’s and $100’s) by the cashier: to lower
178 Case 3.6 Buranello’s Ristorante
the likelihood that customers will use invalid currency to pay their bills.
c. Disclaimers or caveats appearing in the restaurant menu, such as, whether or not
peanut oil is used in cooking certain items: restaurants, similar to other businesses,
attempt to limit their legal liability with public disclaimers when a product or service
poses certain risks or potential risks to customers.
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