Cash register compliance in the gastronomy industry: risks and obligations for waiters’ wallets

The ability to balance cash registers is essential for catering businesses in order to avoid complaints during audits. The change held in waiters’ wallets poses particular risks. This article explains the legal and practical considerations.

Cash balance capability in focus during tax audits

Cash balance capability is a key element of proper cash management. It is regularly checked during tax audits and cash audits, especially in cash-intensive businesses such as restaurants.

What does cash balance capability mean?

• Cash balance capability refers to the ability of a cash register to reconcile the actual cash balance (actual balance) with the calculated balance (target balance) at any time. This is a basic requirement for proper cash management.
• The legal basis for this can be found in Section 146 (1) of the German Fiscal Code (AO): All business transactions must be recorded completely and in a manner that can be traced at any time.
• In cash audit capability, the cash balance in the cash register is compared with the entries in the cash book.

What happens if cash audit capability or documentation is lacking?

Differences between the target and actual balances can be considered cash management deficiencies. Formal deficiencies of material significance may result in additional tax assessments – not only for the day of the audit, but often retroactively for the entire audit period.

During an unannounced cash audit or as part of a tax audit, the auditor may request a so-called ‘cash count’. This involves checking whether the current cash balance has been correctly recorded.

Risk to cash reconciliation: waiter wallets & change

Waiter wallets, also known as ‘waiter purses,’ are a particularly sensitive area in the restaurant industry. These usually contain change that belongs either to the waiter themselves or to the restaurant owner. In both cases, there are specific obligations to ensure that the cash register can be reconciled.

If it is unclear during a tax audit how much cash a waiter had at the start of their shift, it is often impossible to verify the cash balance. The tax office can then assume that there are deficiencies in the cash management and invoke its power of estimation (Section 162 of the German Fiscal Code (AO)).

Therefore, the following applies: Documentation of the initial balance is mandatory

Daily documentation of the initial balance of the waiters’ wallets is central to the ability to perform a cash audit. This initial balance is the basis for a comprehensible settlement at the end of the day and must be recorded in particular if the change is the property of the waiter.

If this information is missing, there is no basis for performing a cash audit.

Two scenarios for managing waiter wallets

In practice, there are two typical models for handling waiter wallets in the catering industry:

1. Waiters work with their own wallets

In this model, change is the property of the waiter. This has organisational advantages but entails tax risks.

Our recommendations:

• Specify a uniform starting balance, e.g. £200 per waiter per day.
• The starting balance must be documented daily by the waiter themselves.
• In our opinion, this balance should not be recorded in the restaurant’s cash register, as the change is the property of the waiter.
• Random checks by the restaurant operator – e.g. on a monthly basis – increase credibility.
• All instructions should be recorded in writing in a process description or cashier instructions and countersigned by the respective employee.
• Ideally, these instructions should be attached to the employment contract.
• The instructions are part of the procedural documentation and must be archived accordingly.

Important to know: The documentation does not replace daily cash management, but rather supplements it. Even if the change belongs to the waiter, the restaurateur is obliged to maintain processes to ensure that the cash register can be audited.

2. The restaurateur provides wallets

In this model, the restaurateur provides the waiters’ wallets, and the change is the property of the restaurateur. This approach has the advantage that the entire cash flow can be recorded for operational purposes and is easier to track.

Our recommendations:

• The wallets are prepared centrally and have a fixed, uniform starting balance.
• The starting balance is recorded as part of the cash balance.
• The daily checking and documentation of the initial balance is mandatory.
• This procedure should also be recorded in the procedural documentation.

Here, too, the following applies: traceable and verifiable records are mandatory. In this model, however, the restaurateur bears full responsibility for the proper management of the cash register.

Underestimated risk: cash register inspection capability during cash register audits

Unannounced cash audits are a powerful weapon in the financial administration’s arsenal. Auditors can check your cash management during business hours without prior notice. This often involves a spontaneous cash count.

The situation becomes critical when:

• the initial balance is not documented,
• it is not possible to reconcile the target and actual balances,
• missing process documentation calls into question the credibility of the cash management.

Particularly tricky: Any shortfalls identified can be applied not only to the time of the audit, but to the entire audit period. This can lead to additional tax payments.

Whether a cash audit is ordered is at the discretion of the auditor and depends on the specific circumstances of the individual case.

Procedural documentation: the backbone of proper cash management

Procedural documentation is the central instrument for proving the correctness of cash management. It must include, among other things:

• Description of the cash management system,
• Responsibilities of employees,
• Handling of waiter wallets and tips,
• Rules for recording opening and closing balances,
• Internal control mechanisms (e.g. random checks).

The absence of such documentation can already be considered a formal deficiency – even if the actual cash management is correct.

Cash audit capability is not a ‘nice-to-have’ but a ‘must-have’

Our experience from recent audits shows that cash audit capability is a must for restaurateurs! Not only from a tax perspective, but also to avoid unnecessary conflicts with the tax authorities.

That is why we recommend that you review your current processes:

• Can a cash audit be carried out at any time?
• Are opening balances and other cash flows (e.g. tips) known?
• Is this information documented daily and in writing?

If you can demonstrate clear processes and provide the relevant documentation, you should be on the safe side in the event of upcoming tax audits and cash register inspections.

Please do not hesitate to contact us if you have any questions or require advice.