Posted on

Auditproofing – POS Housecleaning

Today’s posting is the first in a series of articles about “auditproofing” your restaurant.  By this, I mean taking proactive steps to help ensure that your restaurant or bar is not unfairly reassessed for sales and income taxes when it is audited by the CRA or provincial tax ministry.  Please check back regularly for other methods of auditproofing your business.  If you have any questions, please post comments to the articles, and I will do my best to respond.  If you prefer, you can email your questions to me.

Most restaurants have a computerized point of sale (POS) system to keep track of items ordered by each guest, send orders to the kitchen or bar, and process guest check settlements.  Most systems can keep track of many other important transactions, such as discounts given (by type and employee), voids (with reasons, by type and employee), ingredient usage, and many others.  From a tax perspective, the POS system keeps track of every item ordered and calculates the appropriate sales tax.  Just like your car, the POS needs to be maintained properly.

Continue reading “Auditproofing – POS Housecleaning”

Posted on

Restaurant Audit Assumptions

When the auditor arrives to audit your bar or restaurant, he or she will review your internal controls to ensure the accuracy and completeness of your recorded sales and the taxes thereon.  If the documentation is not available to determine that appropriate controls were effective throughout the audit period, the auditor will conclude that the controls were lacking and that the books and records may not be relied upon to support the sales taxes collected by the restaurant.  Most independent restaurants will fall into this category.  As a result, the auditor will proceed to apply an indirect audit approach to estimating the amount of sales that were likely to have been generated, based on your purchases of alcoholic beverages.  Several key assumptions are used in this method, which I will describe in the remainder of this post.

Continue reading “Restaurant Audit Assumptions”

Posted on

How Much is Too Much?

This post concerns customer comps or promotional drinks served by restaurants and bars.  The issue is:  how much is too much?

Most restaurants and bars offer promotional drinks to their customers from time to time.  Sometimes it is to acknowledge frequent visits, high spending or special occasions.  Other times it may be to “compensate” a customer for a service or quality issue.  In either case, the customer receives a free (complimentary) drink.  All restaurateurs know that this is an effective method of promoting and growing a restaurant business.  However, if you don’t keep track of these types of promotions properly, customer comps could be your downfall.

Continue reading “How Much is Too Much?”

Posted on

5,000 Tax Auditors on the Prowl

In a National Post article last December, CRA warns business owners on Tax Cheating Software, it disclosed that the CRA has dedicated 5,000 employees to the task of finding unreported income and ensuring that sales taxes are remitted properly, “even when sales records are missing.”  This is a thinly disguised warning to restaurants (and other cash businesses) that CRA is about to descend on your business, using indirect audit methods to identify unreported income and the sales taxes that should have been remitted.  The reference to tax cheating software refers to sales suppression software, also known as “zappers”.

Continue reading “5,000 Tax Auditors on the Prowl”

Posted on

Revenu Quebec Targets Restaurants

According to the Revenu Quebec website, there were approximately 17,600 restaurants selling $9.5 billion of food and alcoholic beverages in 2007.  As in most other provinces, the restaurant industry is a significant and vital sector of the economy.  While the industry may not be particularly profitable, it does play a significant role in the collection of retail sales taxes on behalf of the federal and provincial governments.  Rather than be appreciative of the taxes that are collected and remitted by the restaurant industry, Revenu Quebec (along with all of the other tax authorities in Canada, the US, and the OECD countries) believe that tax evasion in the restaurant industry is widespread.  Studies in the US indicate that as many as half of all restaurants fail to report all sales revenue.

Continue reading “Revenu Quebec Targets Restaurants”

Posted on

Legalized Extortion?

I’m going to describe a real case study and let you decide if the title of today’s blog is true.  This situation occurred several years ago at a client’s restaurant in Ontario.

My client operated a small, reasonably successful, restaurant in a fashionable downtown neighbourhood.  She was the head chef, general manager and office administrator.  She did everything but wait on tables.  I found her to be scrupulously honest in every respect.  One day she received notice that her restaurant had been selected for a retail sales tax audit.  She wasn’t concerned, at all.  In fact, she relished the opportunity to show the auditor her impeccably accurate and organized accounting records.  She knew that she had always collected and remitted the correct tax from all of her sales transactions.  She recorded every single sales transaction, even the few that were settled with cash.  In short, she thought it would be an impossibility that the auditor could reassess her business for any unpaid taxes.  She was about to experience the the impossible!

Continue reading “Legalized Extortion?”

Posted on

The True Cost of Staff Theft

As restaurateurs, we are all well aware of the high incidence of theft by our employees.  Proper supervision and other internal controls can help minimize theft.  As prudent businesspeople, we try to balance the cost of detecting and preventing theft against the cost of the items taken from the restaurant.  Usually, we only consider the actual cost of the item that is being stolen.  If a bottle of wine that costs us $20 goes missing, we consider our cost of the theft to be $20.  Sound about right?

Unfortunately, your true cost of theft is substantially higher than the cost of the items that go missing!  If you don’t believe me, please read on.  You are about to be shocked and angered, I hope.

Continue reading “The True Cost of Staff Theft”

Posted on

You’ve Been Selected

You will find out about your upcoming audit, when you receive an officious telephone call from the auditor assigned to your establishment.  He or she will try to schedule a start date for the audit within the next couple of weeks.  They don’t like to give you too much time to get ready for their arrival, but they have some scheduling flexibility.  It all happens very quickly (in the space of a minute or so).  Even seasoned tax professionals begin to sweat!

Continue reading “You’ve Been Selected”