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The Case of the
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Consultant Connie Clue wraps up the case and offers some final thoughts on why expenses were rising and profits were shrinking at ABC Long-Term Care Facility. She focuses on failure to check deliveries, improper accounting for food, lack of portion control, excessive leftovers, poor storage practices, pilferage – and more.
Part Three (Originally printed in Dietary Manager, November/December 2004 and the principles still work today)
In Parts One and Two, consultant Connie Clue worked diligently on “The Case of the Disappearing Money” at ABC Long-Term Care Facility in Everywhere USA. Each month, more of the facility’s money was disappearing and it’s been up to Connie to discover the culprits. In Part One, Connie’s investigation zeroed in on the menu’s impact on food cost. In Part Two, she pinpointed overproduction, poor purchasing practices, and the importance of discovering the price per unit. Now it’s time to wrap up the investigation and put the remaining pieces of the puzzle together.
Connie sat pondering the notes in front of her. She should have felt relieved that she had uncovered so many causes for the disappearing money, but she just couldn’t shake the feeling that there were still more clues craftily disguised in this case. In Parts One and Two, she showed ABC facility how their actual PRD (per-resident-day) cost was closer to $4.02 rather than the $6.10 they believed represented their PRD. But Connie had the nagging feeling that she didn’t have the whole picture. Connie reviewed her list of the top cost suspects:
She was encouraged to see the progress she had made so far, but realized her quest was not over. Connie bit hard on her eraser and thought about what she still needed to accomplish. She had seven more areas to investigate which would incorporate the remaining cost suspects. Once those areas were explored, the list would be complete and she could wrap up this case. The still unexplored areas were:
- Food Purchased ≠ (does not equal) Food Cost – Inventory
- Pilferage – Obvious – Disguised
- Food = Money
- Portion Control
- Scratch vs. Convenience
- Cleaning
- Payment
Her eyes focused on the first area, “Food Purchased ≠ Food Cost,” and she knew what needed to be done next.
It wasn’t going to be pretty, the staff would not like it, but ABC facility needed to do an inventory. Yikes! Only after completing an inventory would they be able to get to the bottom of the food cost mystery. Connie went to her large file cabinet to find the folder labeled “Inventory.” The top of the file had the following equation: “Food Cost Formula.”
Beginning Inventory + Purchases – Ending Inventory = Food Cost
Connie started figuring what she knew. ABC facility food purchases were $20,000 and they were using the $20,000 as their food cost. Unbeknownst to them, “food purchased” told the facility just that – the cost to purchase the food. Food pur-chased was only one part of the equation for food cost. She plugged ABC’s numbers into the food cost formula and dis-covered:
Food Cost =
Beginning Inventory $12,000
+ Purchases $20,000
– Ending Inventory $ 9,000
=Food Cost $23,000
It wasn’t going to be pretty, the staff would not like it, but ABC facility needed to do an inventory. Yikes! Only after completing an inventory would they be able to get to the bottom of the food cost mystery. Connie went to her large file cabinet to find the folder labeled “Inventory.” The top of the file had the following equation: “Food Cost Formula.”
Beginning Inventory + Purchases – Ending Inventory = Food Cost
Connie started figuring what she knew. ABC facility food purchases were $20,000 and they were using the $20,000 as their food cost. Unbeknownst to them, “food purchased” told the facility just that – the cost to purchase the food. Food pur-chased was only one part of the equation for food cost. She plugged ABC’s numbers into the food cost formula and dis-covered:
Food Cost =
Beginning Inventory $12,000
+ Purchases $20,000
– Ending Inventory $ 9,000
=Food Cost $23,000
There was a $3,000 or 15 percent difference! When putting all the pieces into the puzzle the distorted picture cleared. ABC facility now had a true view of their actual food costs.
Connie was on a roll and delved deeper into the inventory issue. Just motivating employees to actually take a physical inventory would be a major hurdle. How could she communicate to ABC facility the importance of an inventory on food cost control? The saying “Show me a large inventory and I’ll show you high food costs” zipped through her mind. Human nature demonstrates over and over again that the more we have, the more we use. If you have shelves that are “magically” full, the belief is that a few items won’t be missed (similar to how kids believe that the ATM machine produces a constant flow of money). Connie lamented how often she has stumbled across this mistaken belief in the course of her investigations.
She made notes about inventory that she would share with ABC’s staff:
Examinations of the inventory clue lead Connie to the second main cause for excessive food cost. Can you guess it? If you guessed theft, you are correct. Food = Money. Would you leave $3,500 by an unlocked back door for hours? Obviously, most people would say no, but facilities routinely do this with their food deliveries. Until ABC put an inventory system in place, Connie knew it would be difficult to track the real cost of theft. She knew from experience that
Connie was on a roll and delved deeper into the inventory issue. Just motivating employees to actually take a physical inventory would be a major hurdle. How could she communicate to ABC facility the importance of an inventory on food cost control? The saying “Show me a large inventory and I’ll show you high food costs” zipped through her mind. Human nature demonstrates over and over again that the more we have, the more we use. If you have shelves that are “magically” full, the belief is that a few items won’t be missed (similar to how kids believe that the ATM machine produces a constant flow of money). Connie lamented how often she has stumbled across this mistaken belief in the course of her investigations.
She made notes about inventory that she would share with ABC’s staff:
- Keep inventory levels low.
- Reduce the number of items you stock (consider using ready-made spaghetti sauce instead of sauce made from scratch, which will reduce the number of spices you need on hand). Side note: Shelf life for most spices is about 18 months, after which they start losing potency.
- Adjust par levels to menus and counts.
- Keep a perpetual inventory of your key items.
- Keep storeroom and freezer locked except when needed.
- Store foods at proper temperature.
– Did you know that for every 1 degree increase in your milk temperature over 32-35 degrees, milk loses one day of shelf life?
– Keep milk in the back of the refrigerator, not in the door.
– For more food storage guidelines see www.ces.uga.edu/pubcd/b914-w.html. - Pay special attention to produce.
– Avoid chill damage.
– Prevent freeze damage.
– Handle produce carefully.
– Serve fresh fruit at room temperature for the best flavor. - Rotate inventory.
– Follow the FIFO practice of First In First Out. - Account for floor stock.
Make sure you account for all items going to the nursing station.
– Include souffle cups, straws, etc.
– Confirm all items are inventoried.
– Make sure the floor stock actually goes to the residents. - Be sure your facility practices good rodent and pest control.
Examinations of the inventory clue lead Connie to the second main cause for excessive food cost. Can you guess it? If you guessed theft, you are correct. Food = Money. Would you leave $3,500 by an unlocked back door for hours? Obviously, most people would say no, but facilities routinely do this with their food deliveries. Until ABC put an inventory system in place, Connie knew it would be difficult to track the real cost of theft. She knew from experience that
- A 5 percent theft rate costs $7,500/year.
- A 10 percent theft rate costs $15,000 each year.
It got even more scary when, upon further research, Connie uncovered a report by a former president of the Chicago Professional Polygraph Department that noted approximately 17 percent of all employees can be classified as significantly dishonest (Controlling Food Costs). Digging deeper she found that according to a Department of Commerce study, one-third of all employees steal! On top of that, a report from the Small Business Administration estimated that 60 percent of all business failures are due to theft. The numbers were mind-boggling! Connie knew from many years of sleuthing that systems had to be put into place to keep employees honest. Implementing an inventory system was a good first step, but ABC facility needed more systems of “checks and balances.” Their lax practices made it easy to encourage theft. The fact that storerooms and freezers were locked only during the night left many hours that these areas were vulnerable, and that was the equivalent of a neon “welcome sign” encouraging pilferage. She noted that ABC should make it a practice to lock the storerooms at all times with only the manager in charge of the keys. This way there would be another “set of eyes” whenever an employee removed items from the storeroom.
Along this note, Connie was pleased to observe that ABC facility had started using clear trash bags. She had been involved in too many cases where items were put into black trash bags to be carted outside to the trash. Later that day, an employee retrieved the “trash” (usually expensive items such as beef, shrimp, etc.) and deposited it into their car. In one case, she uncovered a major theft ring involving the vendor, the manager, and several employees. Talk about missing money!
She reviewed the reasons most employees steal and the following four reasons kept appearing: •
Along this note, Connie was pleased to observe that ABC facility had started using clear trash bags. She had been involved in too many cases where items were put into black trash bags to be carted outside to the trash. Later that day, an employee retrieved the “trash” (usually expensive items such as beef, shrimp, etc.) and deposited it into their car. In one case, she uncovered a major theft ring involving the vendor, the manager, and several employees. Talk about missing money!
She reviewed the reasons most employees steal and the following four reasons kept appearing: •
- Need. (self-explanatory)
- Revenge. Often the employee is angry at their current life situation or jealous or mad at the people above them •
- Rationalization. During her investigations, Connie often heard employees justify their theft by saying they stole to offset their “low” pay •
- Thrill.
Connie made a note that she needed to work with ABC facility to put into place practices to expose and prevent theft. She then reviewed her files and the words “Food is Money” jumped out at her. She was constantly amazed at people’s beliefs:
- Since everyone ate, everyone was an expert on food production.
- Every kitchen is just like home so people could help themselves to whatever their hearts’ desire.
While she was sitting in the foodservice director’s office mulling this over, she noticed that one of the foodservice employees had just removed a batch of fresh-baked chocolate chip cookies from the oven and had put the rack on the count-er to cool. The tantalizing smell made Connie’s mouth water. The administrator stopped by and grabbed a cookie on the way to meeting with the foodservice director, and then took another cookie on his way out. A few other employees, drawn in by the aroma, also helped themselves to several cookies. (Note: This was right in front of Connie – imagine how many cookies they might have “snitched” if she wasn’t sitting there!) It just proved the case again that people did not believe that food = money. At approximately 25 cents a cookie, if 10 people each took one cookie a day it would cost ABC $2.50/day X 365 days = nearly $1,000 a year. Just on snitched cookies!
Connie was now “cookin’ with gas.” She moved on to the nitty-gritty of the operation – the actual production of the food. As she watched ABC prepare recipes, she noticed they were “guesstimating” the amounts of mozzarella cheese to add to the lasagna. She grimaced. Each additional penny per resident day spent by increasing ingredients in a recipe equals $365. If they do that for every meal (just one penny) the cost is more than $1,000 annually! This reasoning naturally led into portion control and, as Connie knew from experience, it is impossible to have effective food cost control without portion control.
The first step in portion control is to have the correct utensils with which to portion. Connie knew that should be obvious, but in the majority of facilities she worked, she frequently observed employees waiting by the dish machine for the correct utensil (which brings up a whole different assignment on labor cost control) or just grabbing the closest size and guessing. Unfortunately, guesstimating can be costly. Thousands of dollars a year could vanish from incorrect portioning.
The second step is weighing the meats.
The center-of-the-plate item is the most expensive; hence facilities can realize tremendous savings by controlling center-of-the-plate cost. Most long-term care menus are written for 1 ounce of protein at breakfast, 3 ounces for lunch, and 2 ounces for dinner. What do you think Connie saw at ABC facility? If you guessed larger than planned portion sizes for meats, you are correct. Most dinners averaged 3-4 ounces of meat. Connie realized that to most people a 1-2 ounce difference in a serving size did not sound like a big deal.
The real scoop was this: Assuming the meat cost $3/lb (or 19 cents/ounce) a 2-ounce serving would cost 38 cents, but a 4-ounce serving would be 76 cents. This 38 cents difference amounts to $13,870 if you did that for all 100 residents every day. And, to add insult to injury, large portions overwhelm most residents and the extra amount just goes in the disposal!
Speaking of waste, Connie’s mind jumped to another factor in excessive food costs – beverages. She noticed that on the trays at every meal, residents were getting 8 ounces of milk. If they drank the milk she wouldn’t be so concerned, but she noticed that most of the milk was returned unconsumed, especially at dinner. The regulations in her state require 16 ounces of milk, but ABC facility was offering 24 ounces.
Doing the math she discovered: 4 cents per ounce x 8 extra ounces per day = 32 cents per resident per day x 100 residents = $32/day or $11,680 per year.
Connie was now “cookin’ with gas.” She moved on to the nitty-gritty of the operation – the actual production of the food. As she watched ABC prepare recipes, she noticed they were “guesstimating” the amounts of mozzarella cheese to add to the lasagna. She grimaced. Each additional penny per resident day spent by increasing ingredients in a recipe equals $365. If they do that for every meal (just one penny) the cost is more than $1,000 annually! This reasoning naturally led into portion control and, as Connie knew from experience, it is impossible to have effective food cost control without portion control.
The first step in portion control is to have the correct utensils with which to portion. Connie knew that should be obvious, but in the majority of facilities she worked, she frequently observed employees waiting by the dish machine for the correct utensil (which brings up a whole different assignment on labor cost control) or just grabbing the closest size and guessing. Unfortunately, guesstimating can be costly. Thousands of dollars a year could vanish from incorrect portioning.
The second step is weighing the meats.
The center-of-the-plate item is the most expensive; hence facilities can realize tremendous savings by controlling center-of-the-plate cost. Most long-term care menus are written for 1 ounce of protein at breakfast, 3 ounces for lunch, and 2 ounces for dinner. What do you think Connie saw at ABC facility? If you guessed larger than planned portion sizes for meats, you are correct. Most dinners averaged 3-4 ounces of meat. Connie realized that to most people a 1-2 ounce difference in a serving size did not sound like a big deal.
The real scoop was this: Assuming the meat cost $3/lb (or 19 cents/ounce) a 2-ounce serving would cost 38 cents, but a 4-ounce serving would be 76 cents. This 38 cents difference amounts to $13,870 if you did that for all 100 residents every day. And, to add insult to injury, large portions overwhelm most residents and the extra amount just goes in the disposal!
Speaking of waste, Connie’s mind jumped to another factor in excessive food costs – beverages. She noticed that on the trays at every meal, residents were getting 8 ounces of milk. If they drank the milk she wouldn’t be so concerned, but she noticed that most of the milk was returned unconsumed, especially at dinner. The regulations in her state require 16 ounces of milk, but ABC facility was offering 24 ounces.
Doing the math she discovered: 4 cents per ounce x 8 extra ounces per day = 32 cents per resident per day x 100 residents = $32/day or $11,680 per year.
This was just milk!
When Connie looked into the juices she discovered that ABC facility was using 100 percent juice for hydration. Juice is a good thing (and as an RD, Connie was a proponent of 100 percent fruit juice), but if the main motive for the juice is hydration, 100 percent fruit juice was an expensive option. If ABC substituted a fruit drink for the 100 per-cent fruit juice they could save close to $10,000 per year (Fruit drink = 11 cents for 4 ounces; Fruit juice = 28 cents for 4 ounces – for a difference of 17 cents. 17 cents x 100 residents is $25/day X 365 days per year = $9,125 per year).
After dissecting the beverage usage, Connie sensed the puzzle was almost finished – just a couple more missing pieces to fit into place. She poured herself another cup of coffee to help clear her brain and went back to her notes, where she saw her next clue, Scratch vs. Convenience.
Connie knew even approaching the Scratch vs. Convenience topic was like engaging in a political debate. Most people felt pretty strongly on the issue one way or another, but in reality most facilities fell somewhere in the middle. Even those facilities that believed they did all scratch cooking usually used some convenience products (i.e. a can of tomato soup instead of homemade), so she had to rely on her powers of observation in this area.
This fact was important because it brought to light the relation of labor cost to food cost. Most accounts she worked with focused on food costs but tended to gloss over labor costs. In actuality, labor costs usually amount to 60 percent of the budget compared to 35-40 percent for food costs. When looking at scratch vs. convenience, it boils down to paying more for the cost of the product (convenience) vs. more for labor (scratch). Facilities need to focus on how much labor is needed for scratch vs. convenience and then review if they actually have the labor. The pattern that Connie usually observed was that accounts had the staffing and the ability (key detail!) on Monday through Friday, but on weekends it was an entirely different story.
One of the examples Connie loved to illustrate this was the comparison of head lettuce to salad mix.
When Connie looked into the juices she discovered that ABC facility was using 100 percent juice for hydration. Juice is a good thing (and as an RD, Connie was a proponent of 100 percent fruit juice), but if the main motive for the juice is hydration, 100 percent fruit juice was an expensive option. If ABC substituted a fruit drink for the 100 per-cent fruit juice they could save close to $10,000 per year (Fruit drink = 11 cents for 4 ounces; Fruit juice = 28 cents for 4 ounces – for a difference of 17 cents. 17 cents x 100 residents is $25/day X 365 days per year = $9,125 per year).
After dissecting the beverage usage, Connie sensed the puzzle was almost finished – just a couple more missing pieces to fit into place. She poured herself another cup of coffee to help clear her brain and went back to her notes, where she saw her next clue, Scratch vs. Convenience.
Connie knew even approaching the Scratch vs. Convenience topic was like engaging in a political debate. Most people felt pretty strongly on the issue one way or another, but in reality most facilities fell somewhere in the middle. Even those facilities that believed they did all scratch cooking usually used some convenience products (i.e. a can of tomato soup instead of homemade), so she had to rely on her powers of observation in this area.
This fact was important because it brought to light the relation of labor cost to food cost. Most accounts she worked with focused on food costs but tended to gloss over labor costs. In actuality, labor costs usually amount to 60 percent of the budget compared to 35-40 percent for food costs. When looking at scratch vs. convenience, it boils down to paying more for the cost of the product (convenience) vs. more for labor (scratch). Facilities need to focus on how much labor is needed for scratch vs. convenience and then review if they actually have the labor. The pattern that Connie usually observed was that accounts had the staffing and the ability (key detail!) on Monday through Friday, but on weekends it was an entirely different story.
One of the examples Connie loved to illustrate this was the comparison of head lettuce to salad mix.
As she scrutinized this chart she saw in black and white what most people don’t realize – convenience foods are not always more expensive than scratch. As the lettuce example demonstrated, once labor and waste are factored in, convenience foods are often less expensive than preparing it from scratch. Facilities needed to investigate items individually and do the math to discover the true cost of the finished prod-uct. (Yet another example of food purchased ≠ food cost.) Connie moved her investigation from food costs to clean-ing costs. She reflected on the fine point about cleaning that most people don’t realize – soap cleans, not suds. Suds are just fillers. Cleaning costs need to be as tightly controlled as food costs. This is another area that facilities need to make their choice on usage cost not case cost. Product A may cost $75 but may do twice as many dishes as Product B which cost $60. Connie knew she needed to look at usage cost instead of purchased cost (same as with food).
Here are some hints Connie passed on to ABC facility to help them manage cleaning and supply costs:
Here are some hints Connie passed on to ABC facility to help them manage cleaning and supply costs:
- Keep a tight control on supplies
- Cleaning supplies are often products employees can use in their own homes, hence a large potential for theft
- Keep supplies in non-food storage areas
- If a product is concentrated, make sure dilution is at the correct level
– Beware of the “if a little of this is good a lot would be better” philosophy. Automatic dispensers can eliminate this problem and help save money - Usage should be consistent. If not, research why.
- Do a cost/benefit study to determine the best product
- Use a reputable supplier.
In the case of ABC facility this may be a little touchy because the owner of the company from which ABC purchases its cleaning supplies sits on the Rotary Club with the owner of ABC facility. Hmmmmm. Connie wonders how much truth he really wants to hear.
Last, but certainly not least, Connie needed to visit with the accountant to look at how ABC facility pays their bills. This was always a landmine made more dangerous because of many misconceptions in this area. Experience taught her that people were usually touchy talking about money. Connie knew having an extended period of time to pay the bill usually costs the account more money in the long run. More often than not, the account actually ended up paying more for the product. When a vendor extends credit to a buyer it is like taking out a loan so the clock starts ticking the moment the food arrives. Connie had to constantly remind facilities about the adage “You don’t get something for nothing.” ABC believed that 90+ days was a good thing because they were using else’
s money (the vendor’s), but in reality they were using their own money because they were paying with higher food costs. The choice belonged to ABC facility, but it was up to Connie to make sure the relationship between payment terms and food purchased cost was understood. This part of her job was never easy. She squared her shoulders and set off to speak with the accountant.
With that step taken, it was time to wrap up “The Case of the Disappearing Money.” Connie had that bittersweet feeling that occurs whenever she finished a particularly challenging case. However, she felt satisfied because she knew she had helped ABC facility “find” their missing money.
After a thorough examination of the cost suspects, she recapped her findings:
Last, but certainly not least, Connie needed to visit with the accountant to look at how ABC facility pays their bills. This was always a landmine made more dangerous because of many misconceptions in this area. Experience taught her that people were usually touchy talking about money. Connie knew having an extended period of time to pay the bill usually costs the account more money in the long run. More often than not, the account actually ended up paying more for the product. When a vendor extends credit to a buyer it is like taking out a loan so the clock starts ticking the moment the food arrives. Connie had to constantly remind facilities about the adage “You don’t get something for nothing.” ABC believed that 90+ days was a good thing because they were using else’
s money (the vendor’s), but in reality they were using their own money because they were paying with higher food costs. The choice belonged to ABC facility, but it was up to Connie to make sure the relationship between payment terms and food purchased cost was understood. This part of her job was never easy. She squared her shoulders and set off to speak with the accountant.
With that step taken, it was time to wrap up “The Case of the Disappearing Money.” Connie had that bittersweet feeling that occurs whenever she finished a particularly challenging case. However, she felt satisfied because she knew she had helped ABC facility “find” their missing money.
After a thorough examination of the cost suspects, she recapped her findings:
- Menus control all parts of the food service. If the menus cost out high your food costs are going to be high.
- Over-production is the number one reason for high food cost in long-term care.
- Theft is number two.
- Pay bills on time and take advantage of discounts.
- Look at the power of group purchasing programs.
- Avoid emergency shopping at the local grocery store.
- Use a prime vendor.
- Reduce waste.
- Control portions.
- Don’t cut costs – control costs.
- When looking at PRD (per resident day) cost, separate the “extras” such as staff meals, special functions, free coffee, supplements, and floor stock.
-These can go under the umbrella of food cost, but should not be included in PRD cost. - Evaluate the true cost of scratch vs. convenience items including labor cost in the equation.
- Evaluate cleaning supplies by usage cost not purchased cost.
- Price paid is not representative of food cost.
- Many things can be done to control food costs.
- Food purchased does not equal food cost!
Her months of work had paid off. Connie felt that satisfied feeling she got when she helped facilities truly understand their food cost, because with knowledge comes power. Once the facility understood cost, they could make educated choices with their foodservice program that were needed with the confidence and understanding that comes with knowledge. As you learned, there was not just one reason why ABC facility’s money was disappearing, but instead many factors. With a satisfied sigh, Connie put “The Case of the Disappearing Money” to rest. But, unbeknownst to her, in the deep dark corners of GHK facility, a new plot was developing…
©Kim Hofmann, RDN, LD.
©Kim Hofmann, RDN, LD.
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