Staff & Resources
Hiring New Employees
Controls keep staff on straight and narrow
One of the keys to being successful is to spend your time doing what you do best and leave the rest to others.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
 Published August 3, 1998
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