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Protecting Your Employees From You

Jan 22nd 2010
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Stand Off

When I talk with clients regarding why they have not implemented certain internal controls over their accounting system a common response I get is that they implicitly trust their employees. Trust is not a replacement for internal controls (see Trust But Verify ) however many times that is not a compelling argument for business owners. So here is another reason I use to explain why ethical and responsible owners and managers should implement internal control procedures. The reason is simple. Your employees want you to! It is an absolute certainty that accounting errors and mistake will occur in your organization. Your employees do not want to become the scapegoat for these errors just because you haven't put procedures in place to assign accountability over the organizations assets.

A perfect example I recently encountered was a business client where no cash handling procedures had been put in place over receipts at the register. After talking with the staff I got the same story from every one of them. They were all terrified and highly dissatisfied that there was a complete lack of control or accountability over the cash drawer. They all felt, quite correctly, that because no controls over cash handling had been implemented, they were powerless to prevent errors or theft  from the cash drawer and yet they would be held responsible if errors or theft occurred. Not a very good or fair situation to put your employees in. Case in point, $50 had gone missing from the cash drawer a few weeks prior and suspicion had been cast on all the employees by the owner since they could all access the drawer. This put everyone in an uncomfortable position that hurt the morale of the business. The owner later remembered that he himself had taken the $50 out of the drawer, but since they performed no petty cash reconciliation it had been forgotten.

The common consensus regarding internal control procedures is that they are for preventing or detecting fraud. That however, is only one value add proposition for implementing strong internal control procedures. From the perspective of the employees, the value is that the internal controls that have been implemented are the evidence to exonerate them from misdirected accusation or suspicion when something goes wrong. Without controls and segregation of duties over custody, recordkeeping and authorization it is not possible to assign accountability or responsibility over transactions and assets which puts everyone at risk. Your employees appreciate your trust in them but they do not appreciate being put at risk for all the accounting errors of your organization. Don't make your employees your scapegoats.

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