Hong Kong Theme Park and China Hotel Restaurant

Delaware North Companies was looking to sell its Asian subsidiary headquartered in Hong Kong that included Ocean Park Concessions, Flight Kitchens in Hong Kong, Bangkok, Guam, Saipan, and China, and some Chinese businesses including the restaurant in a Chinese Hotel in Guangzhou, China. The problem management foresaw was that internal controls in some of its businesses were weak and would need strengthening before they could receive the desired price from a sale.

I was asked to relocate to Hong Kong and assume the position of Director of Internal Audit. My wife took a leave of absence as a school teacher and found a teaching position in Hong Kong.

My first assignment was Ocean Park, a theme park built on Hong Kong’s location as an island in the ocean. Food and Beverage operations consisted of concession stands, a restaurant buffet, a Chinese Restaurant, and a Pizza restaurant.

My audit consisted of reviewing cash procedures, purchasing/receiving, accounts payable, payroll, inventory, capital expenditures, sales, etc. As I identified issues, I discussed them with management. In my audit report, I identified the various issues, made my recommendations, and explained the benefit of implementing them. After discussing the audit report with senior management, I was given the directive to implement my recommendations.

My next assignment was to audit the Chinese restaurant in the Friendship Hotel in Guangzhou, China (formerly Canton). Every Monday morning, I would take the train to Guangzhou and check in at the China Hotel. From there, it was a five minute walk to the Friendship Hotel and DNC’s restaurant. Since the staff only spoke Chinese, I had a Hong Kong interpreter with me.

I observed the month end inventory and noted some issues with inventory counting procedures. After discussing my concerns with management, I trained the Chinese staff to count systematically from left to right, top to bottom, thereby ensuring all product was counted.

The restaurant menu had not been costed. I sat down with the Chinese chef and my interpreter, and drew up Cost Specification Sheets, listing each ingredient, the amount used, and the cost of the ingredient. When all costs for a menu item were tallied, I divided the cost by the sales price to calculate the Food Cost percentage. When the General Manager reviewed my cost analysis, he raised some prices and lowered a few to bring them closer to the Food Cost percentage goal.

As a result of my audit work and subsequent internal control implementations at these venues and others, internal controls were strengthened throughout the company, Food and Beverage Costs decreased, and profitability increased. Delaware North Companies was able to sell its Asian subsidiary at a price that was multiple times greater than what it had paid for the company ten years earlier.

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