Chapter 10
Cash Controls
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2. The new manager is responsible for scheduling and keeping payroll costs to a certain percentage
of sales.
3. The head chef at the restaurant counts food supplies at the beginning of each day and is
responsible for ordering replacement food. The manager compares the daily inventory counts
to the inventory used in the daily sales to ensure there are no anomalies.
4. A hiring package was created to collect personal information on new employees (such as name,
address, SIN, bank account number). Michael had to approve all new hires and payroll was
deposited directly into employees’ bank accounts.
5. A computerized system is now used to record sales. All servers have their own pass code to
record sales. Discounts or free meals must be approved by the manager entering a special code
to allow the discount or free meal.
6. Overall, the bookkeeper still updates the books every month, but also prepares financial
statements on a monthly basis for Michael to examine.
As this example shows, there are many types of controls that apply to businesses. When controls
are not in place, organizations are vulnerable to activities that will be detrimental to continuing
operations. The example above shows a case of theft and
fraud
. Fraud is defined as any illegal
intentional act of deception that results in a financial benefit or gain. It may not always be easy to
identify because the intention is to hide the fraudulent act within normal business activities.
Lack of proper controls and shady accounting led to the bankruptcy of Enron in 2001. Enron was a
large energy company that earned about $100 billion in revenue in the year before it went bankrupt.
As a result of the bankruptcy and discovery of misleading accounting practices, the United States
introduces the Sarbanes-Oxley Act (SOX) in 2002.
SOX affects all public U.S. corporations by setting higher standards for reporting and ensuring that controls
are in place to properly report all aspects of the financial statements. Canadian companies that are traded on
a U.S. stock market must also comply with SOX.
In 2003, Canada introduced Bill 198, which applied stricter controls to Canadian public corporations.
Management is now required to test internal controls over financial reporting and the chief executive officer
(CEO) of the corporation must personally vouch for the accuracy of the financial statements.
INTHE REAL WORLD
