The Importance of Internal Controls on a Business

06-19-2017

Do you know how much one single employee can negatively impact the income from your venture?  How about hundreds of thousands of dollars?

Thieves can Take You To Church

After reading a regional news story about a church (Yes, that’s right—a CHURCH) administrator who embezzled over $240,000 over a period of two years, I started thinking about ways which employees influence your revenue and how—with them planning and executing a plan to hurt your business or venture—they can “get to” your finances.  The church story proved amazing to me, because the church income was—by many business standards—significantly less than you might imagine, and was based entirely on tithes and gifts coming from its members.  You’d think that with normal bookkeeping methods and creating at least two financial statements a year, there would have been ample warning of chicanery, but it appears there was not.  There were never double-count controls exerted for the offering, reviews of paid outs, checks on credit cards issued and balances carried, etc.   It’s not hard to imagine how much money one can lose if controls aren’t extended and those placed in positions of trust do not execute within the parameters extended to them.

Never let it be said that criminals can and will not find a way to take advantage for their own benefit.

I’ve always loved the Consulting role I fill, because I’m often able to help clients fend off financial ruin with some simple financial controls.  Many good, well-meaning clients have no idea what their business can leave open for attack.

Finding the True Culprits

I’ve often shared with clients a story about a telephone call I received from a potential client in the foodservice industry who shared with me that his restaurants were losing money, and, after talking it over with other, similarly situated owners, had decided it was because they didn’t have proper portion control.  Well, having a foodservice background, I understand the importance of control of costs.  But after sharing a meal with him in one of his restaurants, I wasn’t convinced that portion control was the issue.  And it didn’t turn out to be. 

It turned out to be that cash from patrons wasn’t getting into the register, thereby reflecting as lower sales, which on the P&L, translated to higher costs of labor, food, semi-variable expenses, etc.  The key to solving this case was in the higher costs realized across the full spectrum of costs.  That should be a key. But to owners who want to ‘trust’ their employees, it isn’t.

In another foodservice case upon which we consulted, I believed all the cash was, in fact, being credited, and it wasn’t portion control that wasn’t being followed, but food orders which were being pilfered. How do you solve a situation like this? 

I caught on by sitting in a car, watching a food order come in, and within 10 minutes after check in, watching part of the order come right back out the back door, go into the trunk of a car of a shift manager, and disappear into the night. And I’ll be honest.  Having a friend in a competing restaurant casually mention that they had been using a logo’ed food product from another restaurant triggered my instinctively ‘questioning’ processes flowing.  All it took was some gumshoe detective work.

Why, for example, would a Burger King Restaurant use a produce mix and tomatoes logo’ed as being from McDonalds or Hardees?  One might try to explain it away by saying that they use the same vendor and confusion existed with the delivery.  Maybe.  Or maybe there is some hanky-panky going on with the revenue stream… and the best bet is it’s not to the benefit of the owners!

Drugs add a New Dimension to Safety and Costs

The challenge of drugs being used in our businesses and by employees who work in our businesses has brought an entirely new aspect to why employees may follow dishonest pathways.  In the church example listed previously, the assistant became drug dependent and needed money to continue her habit. No one in the church evidently felt having employees—many of whom were volunteers—submit to drug testing was an acceptable practice.  Truth be known, church employees can become just as addicted to pain killers or other types of drugs as anyone else. 

Only by instituting a random drug testing and education program can an employer feel comfortable that his or her best efforts are being extended to support the business.

You need internal controls to drive the revenue of your business.  Give us a call at 917-224-6782 and we can help you design a program, specifically developed for your business type, to protect your revenue.

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