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Think about your favorite restaurant or fast-food restaurant.The general manager of that restaurant has hired you to helpclassify all the costs that are involved in running the restaurantand keeping the customers satisfied. Think about its businessoperations as you answer the following questions.

Describe all business activities from the time a customerarrives to the time that customer departs.

List all costs you can identify with the separate activitiesdescribed in question 1.

Classify each cost from question 2 as fixed, variable, or mixedand explain your classification.

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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Robatelli's Pizzeria Case StudyIntroduction On the morning of October 31st, Elaine Black, Chief Information Officer at Robatelli's Pizzeria, was waiting for both Jim Saxton, database administrator, and Peter Greyton, operations manager, to come to her office for a meeting. While waiting, Elaine was thinking about the surge of telephone and Internet orders expected to be received through the company's customer order center within the next 12 hours. Halloween had always been the most popular day of the year for people in the greater Pittsburgh area to order pizza from Robatelli's. There were 53 restaurant locations to serve these customers, but only one location to receive all of the orders and forward them to the right restaurant. Elaine's thoughts were interrupted as Jim and Peter entered her office. The following conversation took place: ELAINE Well, guys, it's here again, our biggest day of the year. Not only is Halloween a busy day, but we have the upcoming day after Thanksgiving, the week before Christmas, and Super Bowl Sunday. Can our current computer system's infrastructure and people keep pace with the orders we expect? JIM I think our systems are all running at peak performance. We shouldn't have any computer concerns for today or those other busy days. PETER Everyone in the customer order center is focused on making sure that our customers get their pizzas as ordered. We have plenty of people scheduled to work tonight, so we're good to go. ELAINE Terrific. But every time we face one of these peak sales days, I start wondering about the long-term capacity and effectiveness of our computer systems. Jim, we need to think long term about our computer system. I was just reading an article that I'd like you to take a look at. It's about Anheuser-Busch Companies and their use of data mining. JIM I do agree with you, Elaine; we should always be thinking about how newer IT systems can help us. Could you e-mail me the link to the article? ELAINE Sure, and I would like you to think about how we might use the same approach in our business. Peter, your order center people are doing a great job, but again there's something I'd like us to think about in the long run. As you know, we now have to manually enter all customer order center sales and store sales into our general ledger (GL). I think we could improve a lot of things if those sales are automatically fed into our GL software. Why don't you think about any advantages you see for an automatic interface, and we'll look at the costs compared to those advantages. How's that sound? PETER I'll do that. I'll give it some thought and work on a report about an automatic interface between our GL software and the point of sale systems in our restaurants as well as the phone and Internet sales. How soon do you want to meet again to look at these issues? ELAINE Let's say, in two weeks at the same time. As Jim and Peter left her office, Elaine continued to think about the features of the company's accounting information systems and whether or not data extracted from these systems could facilitate the multiple needs of the company. The focus had always been on providing accurate financial accounting information from the various locations; however, the company's aggressive growth strategies meant increased emphasis on the system's ability to analyze detailed customer information that could be translated into increased sales opportunities. Elaine knew the challenges they faced could very well affect the company's ability to maintain its competitive advantage. She realized that her department must continually improve the company's information systems to help it achieve growth strategies. Operating state-of-the-art systems was imperative to position the company to execute those growth plans. However, she was concerned about the possibility that restrictions of the current information systems could actually prevent the company from doing what it wanted to do. Allowing restrictive systems to prevent them from achieving business strategies was a risk that Elaine would not tolerate!

Review the Robatelli's Pizzeria Case Study.

Develop an internal controls system in Robatelli's Pizzeria sales and cash business areas.

Prepare a 12- to 16-slide presentation describing the typical activities and outlining an effective system of internal controls for the Sales, Sales Returns, and Cash Collections business areas. Include any associated risks in these areas.

Describe specific internal controls that include authorization of transactions, segregation of duties, adequate records and documentation, security of assets, and independent checks and reconciliation for each business area.

On the morning of October 31st, Elaine Black, Chief InformationOfficer at Robatelli’s Pizzeria, was waiting for both Jim Saxton,database administrator, and Peter Greyton, operations manager, tocome to her office for a meeting. While waiting, Elaine wasthinking about the surge of telephone and Internet orders expectedto be received through the company’s customer order center withinthe next 12 hours. Halloween had always been the most popular dayof the year for people in the greater Pittsburgh area to orderpizza from Robatelli’s. There were 53 restaurant locations to servethese customers, but only one location to receive all of the ordersand forward them to the right restaurant. Elaine’s thoughts wereinterrupted as Jim and Peter entered her office. The followingconversation took place:

ELAINE: Well, guys, it’s here again, our biggest day of theyear. Not only is Halloween a busy day, but we have the upcomingday after Thanks- giving, the week before Christmas, and Super BowlSunday. Can our current computer system’s infrastructure and peoplekeep pace with the orders we expect?

JIM: I think our systems are all running at peak performance. Weshouldn’t have any computer concerns for today or those other busydays.

PETER: Everyone in the customer order center is focused onmaking sure that our customers get their pizzas as ordered. We haveplenty of people scheduled to work tonight, so we’re good togo.

ELAINE: Terrific. But every time we face one of these peak salesdays, I start wondering about the long-term capacity andeffectiveness of our computer systems. Jim, we need to think longterm about our com- puter system. I was just reading an articlethat I’d like you to take a look at. It’s about Anheuser-BuschCompanies and their use of data mining.

JIM: I do agree with you, Elaine; we should always be thinkingabout how newer IT systems can help us. Could you e-mail me thelink to the article?

ELAINE: Sure, and I would like you to think about how we mightuse the same approach in our business. Pete, your order centerpeople are doing a great job, but again there’s something I’d likeus to think about in the long run. As you know, we now have tomanually enter all customer order center sales and store sales intoour general ledger (GL). I think we could improve a lot of thingsif those sales fed automatically into our GL software. Why don’tyou think about any advantages you see for an automatic interface,and we’ll look at the costs compared to those advantages. How’sthat sound?

PETER: I’ll do that. I’ll give it some thought and work on areport about an automatic interface between our GL software and thepoint of sale systems in our restaurants as well as the phone andInternet sales. How soon do you want to meet again to look at theseissues?

ELAINE: Let’s say, in two weeks at the same time.

Continuing Case: Robatelli’s Pizzeria 33

As Jim and Peter left her office, Elaine continued to thinkabout the features of the company’s accounting information systemsand whether or not data extracted from these systems couldfacilitate the multiple needs of the company. The focus had alwaysbeen on providing accurate financial accounting information fromthe various locations; however, the company’s aggressive growthstrategies meant increased emphasis on the system’s ability toanalyze detailed customer information that could be translated intoincreased sales opportunities.

ability to maintain its competitive advantage. She realized thather department must continually improve the company’s informationsystems to help it achieve growth strategies. Operatingstate-of-the-art systems was imperative to position the company toexecute those growth plans. However, she was concerned about thepossibility that restrictions of the current information systemscould actu- ally prevent the company from doing what it wanted todo. Allowing restrictive systems to prevent them from achievingbusiness strategies was a risk that Elaine would not tolerate!

BACKGROUND

Robatelli’s Pizzeria is a great American success story. Startedby Dino Robatelli in the 1960s, the business impetus was a familypizza recipe. Introduced to the public at a church festival inPittsburgh’s Little Italy, Robatelli’s pizzas are now a recognizedtradition in the Greater Pittsburgh area. A full menu and localexpansion have led to its growing popularity over the years andhave helped it achieve nearly 50 percent of the area market share.Annual sales now exceed $100 million. Following is a timeline ofmilestones in the company’s history:

1962 Dino and Gloria Robatelli contributed$500 and the family pizza recipe to a partnership that opened thefirst Robatelli’s Pizzeria.

1965 The Robatellis bought out their businesspartners.

1967 The first Robatelli’s franchiseopened.

1971–77 Dozens of new Robatelli’s franchises opened throughoutthe surrounding region.

1983 Home delivery service began.1992 A central, one-number calling system for allrestaurants was launched.2003 Internet ordering began. The first “prototype pizzeria” opened.Today Atotal of 53 locations are in operation.

The company has been known for its ability to get ahead ofnational trends. For instance, in the early 1980s, Robatelli’sbegan offering delivery service; however, while the competitorswere merely delivering pizzas, Robatelli’s delivered manyadditional items from its extensive menu. The company was also onthe cutting edge when it launched its one-number telephone orderingsystem whereby a single telephone number was used to service salesorders for the entire region. Additional conveniences becameavailable about ten years later when Robatelli’s introduced onlineordering. Recently, it has expanded its menu offerings and openedprototype restaurants specially designed with new features (such asa full- service bar and a retail counter) that appeal to variouscustomer groups. Each of these advancements has propelledRobatelli’s growth over the past four decades.

Dino Robatelli’s name is also well known for its tradition ofsupporting neighborhood organizations. Robatelli’s promotesschools, amateur athletics, and other community groups.Interestingly, some local student athletes were a tremendous helpto Robatelli’s in 1971 when the business was in trouble. A fire haddestroyed much of the building containing Robatelli’s originalpizzeria and commissary. The commissary made menu ingredients forall of the Robatelli’s pizzerias, so the entire business was injeopardy when this facility became inop- erable. Area students andcoaches helped with the clean-up and rebuilding efforts that madeit possible for the facility to be reopened in a fraction of theanticipated time. Dino Robatelli thanked them by establishing ahall of fame that has become a fixture of Greater Pittsburgh highschool athletics.

Robatelli’s reputation for great Italian food and innovations inboth customer service and community service have contributed to thecompany’s ability to grow into the most popular pizzeria in theGreater Pittsburgh region. Robatelli’s sales include an average of110,000 pizzas per week. It has managed to stay ahead of thenational competitors, which is an unusual feat. In fact, manypeople in and around Pittsburgh believe that pizza can only beRobatelli’s!

MULTIPLE SYSTEMS, MULTIPLE FUNCTIONS, MULTIPLE USES OFINFORMATION

There are three ways to place an order at Robatelli’s: in-store,via telephone, or online. The order processing systems areillustrated in Figure 1. Here’s how they work:

In-store orders

In-store orders are taken by restaurant staff serving patronsdining in one of Robatelli’s restaurants or walking in to place anorder. Servers manually complete an order ticket at the tablesideand input the information into the company’s point of sales systemthrough computer terminals located in the food preparationstations. Walk-in orders are typically entered directly into thesystem by staff using the computer terminal located at thecounter.

Telephone orders

Approximately two-thirds of the company’s business is processedvia the tele- phone. Robatelli’s phone ordering system is called aone-number system, referring to the convenience of ordering througha single phone number, regardless of the restaurant locationnearest the customer.

Most phone orders are received by an operator, who enters theorder directly into a computer terminal while speaking with thecustomer. Customer phone numbers are used to present the customerwith a choice of the nearest pizzeria for preparation and carry-outor delivery. The software in the system references a streetdatabase to verify that the street address exists. Credit cardnumbers are obtained from customers paying by credit card. Thecustomer service rep- resentative verifies the order and creditcard number before ending the call.

Upon confirmation of an order, the order is sent directly to therestaurant, where it is processed through the company’s transactionprocessing system and printed at the appropriate food preparationstation(s). Credit card numbers are included in the transmission,and all credit card transactions are processed at the restaurantsat the time the order is received.

There are several advantages of handling phone orders through acustomer order center rather than at individual restaurantlocations. Above all, the reduc- tion in background noise improvesthe accuracy of the order-taking process. In addition, thecustomer’s wait time is greatly reduced. Before Robatelli’simplemented its one-number system, customers’ wait time at peakcould be up to 15 minutes. The order center’s average wait timegoal is now one minute or less.

Internet orders

To place an online order, a customer must be registered.Registration is a sim- ple process that can occur anytime duringbusiness hours. Customers are asked to provide identifyinginformation that will be retained in the system. Repeat customerswill not have to go through the registration process again.

Web-based ordering is tied to the company’s one-number system.When a customer enters an order online, customer information ispulled from the one- number system. Identifying data such as phonenumber and address do not have to be entered. Menu offerings arepresented on the screen in various drop-down boxes so that anycombination of items can be ordered with many different choices oftoppings or accompaniments. A customer must answer a series ofquestions regarding the order, similar to the questions that wouldbe asked if the customer had been speaking with a telephoneoperator.

Online orders also require confirmation of the menu items andrestaurant location before the call is ended. Credit cardinformation may be entered online, and the transaction will beprocessed at the restaurant filling the order (as is done fortelephone orders). Two firewalls protect the security of customerinfor- mation submitted online.

Customer Service

Up to 135 customer service representatives may be on hand at thecustomer order center to process orders coming in to the businessat peak times. In addition, Robatelli’s employs approximately tenhome-based agents to handle incoming orders. Home-based agents mayperform any of the customer service functions from a computerterminal located within their homes.

All operators are required to undergo a one-week trainingprogram before they begin serving customers. After the trainingprogram, operators are subject to one week of supervised on-the-jobtraining, followed by ongoing perform- ance evaluations.Supervisors at the customer order center perform order scanning,whereby orders are randomly reviewed for reasonableness. Orderscanning is performed more frequently for orders taken by newoperators. Supervisors also follow up on errors and customercomplaints, and may listen in on calls to review the operator’sperformance.

If customers are in need of customer service, they may call ore-mail the com- pany. Supervisors handle these types of calls ande-mail messages, and will respond either via telephone or replye-mail. Restaurant managers can also print customer complaints attheir respective locations.

Accounting functions

Robatelli’s ordering systems and transaction processing systemsare the source of all sales information sent to the accountingdepartment. Restaurant managers prepare daily sales summaries andsubmit them to the company’s administra- tive offices on thefollowing day. These summaries are transmitted electronically viathe intranet and are received in the accounting department.Accounting staff prepare general ledger entries based upon thesesales summaries and key the information into the company’saccounting software. The transaction processing system providessales by restaurant for call-in and Internet orders, which arereconciled to the restaurant summaries on a daily basis. Once theaccounting system is updated and the daily reconciliations areperformed, the data are stored in an on-site server.

Although a lot of accounting information comes from manydifferent loca- tions, the capacity of the system is nearly 25times its current load.

Information Technology

The information technology staff at Robatelli’s is continuouslyengaged in sys- tem maintenance activities. Because the businesschanges so frequently, systems maintenance is an ongoing process.Every time a new coupon is offered, a price is changed, or a newmenu item becomes available, the related information must beintegrated into the transaction processing system.

Each menu addition has its own level of complexity, and many ofthe items include options to customize to individual tastes in aplethora of combinations. This poses a challenge in ordering;however, the menu presentation continues to be improved toeliminate chances of an incomplete or incorrect order. The optionsare available online and to customer service representatives viadrop- down boxes on their computer screens. Most screens require anentry, even if it is “none,” in order to ensure that no part of theorder is forgotten.

Notice that only a couple of years prior to the case time frame,the management of Robatelli’s had begun an Internet order system.As management of Robatelli’s considered the advantages of theInternet order system, it should also have considered the inherentrisks of conducting business via the Internet.

Required:

1. Describe the new risks of Internet orders that Robatelli’smanagement should have considered. The risks you describe should bespecific to the Internet order system.

Robatelli's Pizzeria Case StudyIntroduction

On the morning of October 31st, Elaine Black, Chief InformationOfficer at Robatelli's Pizzeria, was waiting for both Jim Saxton,database administrator, and Peter Greyton, operations manager, tocome to her office for a meeting. While waiting, Elaine wasthinking about the surge of telephone and Internet orders expectedto be received through the company's customer order center withinthe next 12 hours. Halloween had always been the most popular dayof the year for people in the greater Pittsburgh area to orderpizza from Robatelli's. There were 53 restaurant locations to servethese customers, but only one location to receive all of the ordersand forward them to the right restaurant. Elaine's thoughts wereinterrupted as Jim and Peter entered her office. The followingconversation took place: ELAINE Well, guys, it's here again, ourbiggest day of the year. Not only is Halloween a busy day, but wehave the upcoming day after Thanksgiving, the week beforeChristmas, and Super Bowl Sunday. Can our current computer system'sinfrastructure and people keep pace with the orders we expect? JIMI think our systems are all running at peak performance. Weshouldn't have any computer concerns for today or those other busydays. PETER Everyone in the customer order center is focused onmaking sure that our customers get their pizzas as ordered. We haveplenty of people scheduled to work tonight, so we're good to go.ELAINE Terrific. But every time we face one of these peak salesdays, I start wondering about the long-term capacity andeffectiveness of our computer systems. Jim, we need to think longterm about our computer system. I was just reading an article thatI'd like you to take a look at. It's about Anheuser-Busch Companiesand their use of data mining. JIM I do agree with you, Elaine; weshould always be thinking about how newer IT systems can help us.Could you e-mail me the link to the article? ELAINE Sure, and Iwould like you to think about how we might use the same approach inour business. Peter, your order center people are doing a greatjob, but again there's something I'd like us to think about in thelong run. As you know, we now have to manually enter all customerorder center sales and store sales into our general ledger (GL). Ithink we could improve a lot of things if those sales areautomatically fed into our GL software. Why don't you think aboutany advantages you see for an automatic interface, and we'll lookat the costs compared to those advantages. How's that sound? PETERI'll do that. I'll give it some thought and work on a report aboutan automatic interface between our GL software and the point ofsale systems in our restaurants as well as the phone and Internetsales. How soon do you want to meet again to look at these issues?ELAINE Let's say, in two weeks at the same time. As Jim and Peterleft her office, Elaine continued to think about the features ofthe company's accounting information systems and whether or notdata extracted from these systems could facilitate the multipleneeds of the company. The focus had always been on providingaccurate financial accounting information from the variouslocations; however, the company's aggressive growth strategiesmeant increased emphasis on the system's ability to analyzedetailed customer information that could be translated intoincreased sales opportunities. Elaine knew the challenges theyfaced could very well affect the company's ability to maintain itscompetitive advantage. She realized that her department mustcontinually improve the company's information systems to help itachieve growth strategies. Operating state-of-the-art systems wasimperative to position the company to execute those growth plans.However, she was concerned about the possibility that restrictionsof the current information systems could actually prevent thecompany from doing what it wanted to do. Allowing restrictivesystems to prevent them from achieving business strategies was arisk that Elaine would not tolerate! Background Robatelli'sPizzeria is a great American success story. Started by DinoRobatelli in the 1960s, the business impetus was a family pizzarecipe. Introduced to the public at a church festival inPittsburgh's Little Italy, Robatelli's pizzas are now a recognizedtradition in the Greater Pittsburgh area. A full menu and localexpansion have led to its growing popularity over the years andhave helped it achieve nearly 50 percent of the area market share.Annual sales now exceed $100 million. Following is a timeline ofmilestones in the company's history: 1962 Dino and Gloria Robatellicontributed $500 and the family pizza recipe to a partnership thatopened the first Robatelli's Pizzeria. 1965 The Robatellis boughtout their business partners. 1967 The first Robatelli's franchiseopened. 1971–77 Dozens of new Robatelli's franchises openedthroughout the surrounding region. 1983 Home delivery servicebegan. 1992 A central, one-number calling system for allrestaurants was launched. 2003 Internet ordering began. The first“prototype pizzeria” opened. Today A total of 53 locations are inoperation.

Review the Robatelli's Pizzeria Case Study. Considering thenature of the relationship between Robatelli's Pizzeria home officeand its franchise owners, the company may be quite vulnerable totheft or fraudulent financial reporting committed by thesefranchise owners. I

n 700 to 1,050 words, discuss the following: Describe threecomponents of the fraud triangle and how each would relate to afranchise owner's likelihood to defraud Robatelli's Pizzeria.Identify three types of fraud to which Robatelli's Pizzeria may besusceptible.

Indicate whether the fraud is classified as management fraud,employee fraud, vendor fraud, customer fraud, or computer fraud foreach.

Suggest an internal control that could be implemented to preventor detect the potential fraud for each. Design a 5- to 6-bulleteditem code of ethics for Robatelli's Pizzeria. You may find guidanceby searching the Internet for examples.

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