Bakery Risk Universe — Final

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1. Inventory & Raw Material Risks

1.1 Shrinkage & Theft

· Staff taking flour, sugar, butter, eggs home

· Ingredients used in production but not recorded
· Materials issued to production but diverted or sold off-site
· Small-quantity, high-frequency pilferage (vanilla extract, chocolate, nuts)

1.2 Spoilage & Expiry

· Expired ingredients not written off, still on the books

· Older stock used first instead of FIFO, causing spoilage
· Spoiled items logged as normal waste to hide poor management
· Near-expiry ingredients mixed into fresh production

1.3 Receiving Manipulation

· Supplier delivers less than invoiced, staff sign anyway

· Fake delivery notes for goods never received
· Storekeeper and supplier splitting the difference
· Lower-grade ingredients delivered, premium grade invoiced

1.4 Valuation Errors

· Last purchase price not updated in the system

· Imported ingredients not revalued after exchange rate changes
· Dough or unbaked items not counted in stock
· Aged stock still valued at cost when it should be written down

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2. Production Process Risks

2.1 Unauthorized Production

· Staff baking extra batches for personal sale

· Using bakery ovens after hours without permission
· No batch order issued but production still happens

2.2 Yield Manipulation

· Real output lower than what batch records show

· Waste understated to hit yield targets
· Finished goods recorded but never delivered to storage or sale

2.3 Recipe Deviation

· Cheaper ingredients swapped in without approval

· Ingredient quantities changed, affecting taste and margin
· Extra ingredients used for favored customers at no extra charge

2.4 Traceability Gaps

· Cannot trace a finished product back to its raw ingredient batch

· Allergen batches not tracked
· No system to handle a product recall
2.5 Material Reconciliation Gap

· Theoretical flour usage based on sales does not match actual flour drawn
· Variance exists but no one investigates
· "Ghost consumption" written off as waste without explanation

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3. Sales & Revenue Risks

3.1 Cash Skimming

· Customer pays, cash goes into pocket, sale not recorded

· Staff giving free items to friends or family
· Counterfeit notes accepted, then swapped with genuine cash

3.2 Sales Under-Reporting

· Invoices manually altered after printing

· POS bypassed entirely for some transactions
· End-of-shift report deleted and re-run at a lower total
· Custom orders taken and fulfilled without any system record

3.3 Credit Sales Abuse

· Fake customer accounts created to book bogus sales

· Customers not chased for payment, debt becomes uncollectible
· Discounts given beyond approval limit
· Credit limit overridden without authorization

3.4 Returns & Voids

· Fake returns processed, cash pocketed

· Excessive void transactions right before shift close
· Returned goods logged but not physically restocked
· Credit notes issued without supporting evidence

3.5 Delivery Risk

· Driver collects cash from customer, does not remit

· Goods marked delivered but diverted elsewhere
· Customer signature forged

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4. Procurement Risks

4.1 Fake Suppliers

· Supplier does not exist, invoices are fabricated

· Supplier is a relative of a staff member
· Same bank account or address as an employee

4.2 Invoice Fraud

· Unit price inflated above market rate

· Same invoice submitted and paid twice
· Credit note from supplier kept by staff, not passed to accounts

4.3 Approval Bypass

· Large order split into smaller ones to stay under approval limit
· Multiple orders placed same day across different branches
· "Emergency" purchase used to skip normal controls

4.4 Kickbacks

· Staff receive cash or gifts from suppliers

· No competitive quotes for regular high-value items
· Sole supplier with no justification

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5. Costing & Financial Reporting Risks

5.1 Product Costing Errors

· Labor or overhead not allocated to products

· Packaging cost excluded from product cost
· Wrong costing leads to incorrect margin per product line

5.2 Expense Misclassification

· Personal expense claimed as business cost

· Equipment purchase expensed instead of capitalized
· Prepaid costs not spread across correct periods

5.3 Revenue Cut-off Errors

· Sale recorded before goods leave the premises

· Wholesale delivery booked before customer accepts it
· Gift cards or vouchers booked as revenue immediately

5.4 Inventory Misstatement

· Stock count inflated to hide losses

· COGS understated to improve reported margin
· Year-end journal entries adjusting stock without physical count

5.5 Management Override

· Direct journal entries to revenue or cost accounts

· Adjustments made at month-end with no supporting documents
· Staff pressured to hit profit targets by altering numbers

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6. Cash Handling Risks

6.1 Cash Register Risk

· Same person takes order, receives cash, records sale, and banks the money
· Daily cash-up not checked by a second person
· Cash held in store overnight without secure storage

6.2 Bank Reconciliation Risk

· Deposits recorded in books but not appearing on bank statement

· Money from later sales used to cover earlier missing cash
· Old reconciling items never cleared or investigated

6.3 Petty Cash Risk

· Reimbursement claimed without manager approval

· Receipt missing but claim still paid
· Same expense claimed multiple times
· Personal fuel or mobile top-ups claimed as business

6.4 Digital Payment Risk

· Mobile money or card terminal receipts not matched to bank settlement

· Customer pays into staff personal mobile wallet
· Refund processed to a different account than the original payment

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7. Operational Control Risks

7.1 Authorization Weakness

· Purchases, production runs, or discounts happen without sign-off

· Manager gives blanket approval without reviewing details
· Approval limits not documented or enforced

7.2 Segregation Failure

· One person orders, receives, and records inventory

· IT administrator can also process transactions in the system
· Finance person both prepares and approves bank reconciliation

7.3 Manual Record Risk

· Paper logs with pencil entries or correction fluid

· Missing sequence numbers in invoice or receipt books
· Records stored where anyone can access and alter them

7.4 Reporting Culture Gap

· No way for staff to report theft confidentially

· Staff fear retaliation if they speak up
· Petty theft seen as normal, not challenged

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8. HR & Payroll Risks

8.1 Ghost Employees

· Salary paid to someone who left months ago

· Fake name added to payroll
· Casual workers not physically verified before payment

8.2 Attendance Fraud

· One employee clocks in for an absent colleague

· Overtime claimed but not worked
· Overtime approved after the fact, not before

8.3 Pay Rate Manipulation

· Salary or allowance changed without authorization

· Final settlement inflated with unearned leave or notice pay
· Benefits paid to staff not entitled to them

8.4 Casual Worker Risk

· Cash paid to workers with no identity check
· Contractor invoice paid but work never done
· Workers misclassified as contractors to avoid payroll taxes

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9. IT & System Risks

9.1 Access Control

· Staff sharing login passwords

· Ex-employee accounts still active
· Admin rights given to users who do not need them

9.2 Data Integrity

· Transactions backdated to a prior period

· Entries deleted and audit trail does not show it
· Supplier or price master data changed without approval

9.3 Continuity Risk

· POS goes offline, sales recorded manually and never entered later
· No backup of financial data or backup never tested
· Server or cloud data accessible to vendor staff

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10. Compliance & Tax Risks

10.1 Tax Underreporting

· Cash sales not included in VAT or sales tax return

· Taxable and exempt items mixed incorrectly
· Stock transferred between branches treated inconsistently

10.2 Invoice Problems

· Customer invoice missing tax registration number

· Pro-forma given but final tax invoice never issued
· Supplier invoice not compliant, VAT reclaim at risk

10.3 Payroll Compliance

· Overtime paid below legal rate

· Social security or health insurance not remitted on time
· Foreign worker documentation expired

10.4 Food Safety Compliance

· Operating license or health permit expired

· Allergen information not declared on packaging
· Cold storage temperature logs missing or falsified

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11. Physical & Asset Risks

11.1 Equipment Failure

· Oven or mixer breakdown halts production

· No maintenance contract in place
· No business interruption insurance

11.2 Hygiene Failure

· Pest infestation not reported to management

· Health inspector visit could shut down operations
· Cleaning records signed but work not done

11.3 Utility Theft or Waste

· Staff using gas or electricity for personal cooking

· Generator fuel siphoned
· No backup power for fridges and freezers

11.4 Asset Misappropriation

· Delivery vehicle used for personal trips

· Small tools and equipment disappear over time
· No fixed asset register or periodic physical check

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12. Strategic & Management Risks

12.1 Forecasting Failure

· Too much product baked, ends up as waste

· Too little product baked, sales lost
· Seasonality ignored in planning

12.2 Pricing Gap

· Selling price not updated when ingredient costs rise

· Discounts given without checking margin impact
· Competitor price changes not monitored

12.3 Product Mix Problem

· Most production time spent on low-profit items

· Sales team incentivized to push items that lose money
· High-waste products not identified and discontinued

12.4 Key Person Dependency

· Only the master baker knows the recipes

· Owner bypasses all controls, no one challenges
· No written SOPs for critical processes

12.5 Brand Damage

· Product recall scenario with no plan

· Negative social media post ignored until it spreads
· Quality inconsistent between shifts or branches

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One-Page Summary

Cluster Core Risk What It Hits

Inventory Theft, spoilage, fake deliveries Balance sheet overstated, margin hidden
Production Unrecorded output, recipe drift, ghost consumption COGS wrong, real loss masked
Sales Skimming, fake returns, delivery diversion Revenue understated, cash missing
Procurement Fake suppliers, kickbacks, split orders Cash leaks out, costs inflated
Financial Wrong costing, override, cut-off errors Profits distorted, reports unreliable
Cash No segregation, teeming & lading Cash evaporates
Controls Shared passwords, same person handles all Any fraud possible
Payroll Ghost workers, fake overtime Cash lost through payroll
IT Access not revoked, no audit trail Tampering undetectable
Compliance Tax missed, no food safety records Fines, shutdown risk
Physical Oven down, pests, fuel theft Production halts, stock lost
Strategic No forecasting, key person risk Business viability at risk