| Controls keep staff on straight and narrow
|
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| One of the keys to being successful is to spend your time doing
what you do best and leave the rest to others. |
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| For most entrepreneurs, this means you will typically invent,
market or sell something. Necessary administration should be delegated to
others. Doing this effectively requires putting appropriate controls in place
to ensure your assets are not being misappropriated or misspent. There are a
number of ways to control your business. |
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| Have an annual financial plan. As you begin your business
cycle, the preparation of a financial plan allows you to estimate revenue from
different sources as well as expected expenses for running your business on a
month-by-month basis. By comparing your plan with the actual dollars spent each
month, you can quickly highlight any categories that are significantly over or
under your target and investigate them. |
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| Maintain key productivity targets and measure against
actual. One entrepreneur expected his computer staff to deliver 1,750 hours
a year of programming time on various jobs. He measured their progress monthly.
One of his programmers was consistently falling short of target. When he
investigated he discovered that the employee was running his own business from
the office and using the company's equipment. He would not have found this
problem without having set a productivity target and measured against it. |
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| Set up internal controls to minimize fraud. As much as
possible, duties and responsibilities should be split between two or more
employees. If one person is responsible for issuing your invoices, someone else
should be responsible for opening the mail and depositing the cheques in the
bank. Look at common measurements for how long receivables should be
outstanding. If the average age of your receivables is suppose to be 40 days
and it is slowly rising to 60 days, it may be a sign that an employee is taking
cash received from your customers and put them in a similarly named bank
account controlled by the employee. Then the person makes use of the money for
his own purposes for a couple of weeks. |
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| Businesses with a great deal of cash, such as fast food restaurants
and grocery stores, need to have special controls in place to ensure all the
money is going into the till. A common practice is to have "mystery shoppers"
come to the location, purchase goods with cash and see what the employees do
with the funds. |
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| Inventory loss is another area that requires diligence. Make
certain that you count inventory on a regular basis. The faster you learn about
these losses, the better your chance of eliminating them. Some businesses count
high-value items daily. |
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| No system is perfect nor will any system stop collusion between
two employees. The key is to determine the dollar value of your assets that may
be at risk in your business and keep the level of risk to a very low level. The
obvious areas to emphasis are at the point that cash comes into the company or
where cheques are issued. |
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| Make certain that you receive a daily tally of cash received from
the person opening the mail - you can then compare it to the deposit slips if
necessary. Signing all the cheques yourself is a good way to control
expenditures, but for bigger firms you may have to delegate this to two or more
individuals. Review your bank statements every month. This will allow you to
highlight any unusual amounts and give you a capsule sense of what went on in
the business during that time. |
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| Losses can occur in a few other areas. Employees might submit dummy
invoices for payment. One entrepreneur caught a person who had recreated
billings with minor changes from one of the company's major suppliers. And keep
and eye on submissions of personal expenses for payment for any
misappropriation. The most common is mileage, entertainment and travel
bills. |
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| One way to reduce your risk of misappropriation is to keep internal
systems as simple as possible - anything abnormal will stand out very quickly.
People are often caught when they take sick and vacation days. If an employee
is not taking his allotted time, it could be a sign that there's something
wrong. |
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| Of course, your best line of defense against employee theft is to
hire and retain highly motivated staff. |
| |
| People who misappropriate company assets always justify their
actions by saying that the business owed them. Disgruntled employees who
believe they are not being paying well enough or feel the company is not
recognizing their efforts are more likely to find a way to take what they feel
is their due. |
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| Those who are happy will very quickly let you know when they think
there is a problem with another employees actions. You only have to listen
carefully. |
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| Smart entrepreneurs understand that they need to spend their time
focusing on what they do best. Delegation of responsibility allows their
businesses to maximize their potential. Owners maintain control by reviewing
key measurements on their businesses, by keeping their internal systems simple
and by spending time on building a team that enjoys working for them. |
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| Published August 3, 1998 |
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