At the same time, the client was facing the need to reduce the foodservice budget as a result of an economic decline. Despite the client’s general comfort level with the Operator and the fact that they were viewed as part of the “family”, we were asked to review the efficiency of the foodservice operation and make recommendations on how the Client’s new objectives for budgetary reductions could be achieved.

More specifically, the Client was interested in having us:

• Audit the food production management system 
• Review the catering program with focus on selling prices 
• Fashion a customer survey 
• Assist w/ liaison education

The initial review of the operation’s financial records revealed an overstated level of food inventory which resulted in understated food cost and subsidy amounts. Other operating systems were reviewed and found to be underutilized.

The foodservice management company responded by assigning a corporate audit team to review the account and provide the Owner with a report on the extent of the inventory problem and other operating procedures. The report indicated that the inventory had been inflated gradually over several years by approximately $25,000. The inventory being carried “on the books” was 4 times the acceptable inventory level for an account this size! The foodservice management company didn’t know how this could have happened or how this was missed in their normal review of financial data.

We advised the liaison: 

• Not to accept the argument that the $25,000 really represented “late reporting” of the Operator’s inability control the food cost. 
• That any settlement would not be contingent on a contract extension. 
• Not to accept an “investment” in facility improvements as settlement.