The intention of any business enterprise is to make a profit, through providing goods or services to the customers in exchange for money. When the money comes into the organization, it may not automatically amount to profits unless the internal environment of the company is in order (Quattrone, 2016). The Sheer Madness case study presents an example of an organization with an effective external environment but a potentially ruinous internal environment. The account system that has been put in place has elaborate checks and balances but its human component potentially compromises the system.
The Familial Relationship between Daphne and Steve
The familial relationship between Daphne and Steve weakens the internal environment in Sheer Madness as it compromises their roles as checks and balances against one another. The fact that Daphne and Steve are related does not affect the internal environment of the business. Modern Human Resource Management encourages teamwork complete with harmony and cohesion within the teams (van Bunderen, 2018). Steve is a stylist who plays a managerial role while Daphne is the receptionist who plays the role of cashier and accountant. It is critical that the two are able to work harmoniously. However, the absence of Susan in the office creates a secondary issue in that she has entrusted her duties, to each of them so that Steve can check the excesses of Daphne and vice versa. To the extent that Steve and Daphne are related, and also that Daphne was employed as requested by Steve, having the two as checks and balances for one another is like having a system without checks at all. The general idea behind a secured accounting system is to have two levels that cannot compromise one another (Atanasov & Black, 2016). In the instant case, there is no guarantee that Daphne and Steve cannot compromise one another. Most importantly, if there was collusion between the two, Susan would never find out, since Daphne handles the books and banks the money herself. The entire accounting system is a recipe for disaster.
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Segregating Key Duties or Responsibilities
The segregation of key duties and responsibilities can be an effective system to prevent fraud in an accounting system (Quattrone, 2016). In the case of Sheer Madness, more so when Susan is absent, a system that completely separates duties would be necessary to prevent fraud. A good example would be a system where one person handles all the cash while another person handles all the books (Brown, 2017). For example, Daphne receives all the cash from the customers and puts it in the cash box. Conversely, every contractor keeps a record of every transaction in an indelible manner. Finally, two individuals, Daphne and a random contractor, will open the cash box together and count the money, then create a third record of how much was in the cash box. In the case there is any discrepancy, it would be recorded without making any adjustment to the initial records. It is important to note that there is a human component to the system, which can be a weakness (Atanasov & Black, 2016). Therefore, the contractor on duty for the day should be random so that the person accepting the money does not know who will be doing the end of day process in the evening. The propensity for collusion will be reduced and the internal environment would be safer (Brown, 2017).
Conclusion
Businesses cannot run without people, but the people component can be the weakest link in the internal environment. Susan has, in her own words trusted Steve and Daphne to do the accounting. However, to protect her money, she has given respective duties to Steve and Daphne so that they can check one another. The ability to check one another is exponentially limited by their relationship. The best cure for liabilities created by the human component is to limit the influence that one person in the system can have on the other. A random system where a contractor is picked to assist Daphne or Steve in closing the stock can cure the risk created by human relationships in the internal environment.
References
Atanasov, V., & Black, B. (2016). Shock-based causal inference in corporate finance and accounting research. Critical Finance Review, 5, 207-304
Brown, O. (2017). Dealing with employee theft – Dr Ola Brown (Orekunrin) – Medium. Medium . medium.com/@drola/dealing-with-employee-theft-be1f81e20631 .
Quattrone, P. (2016). Management accounting goes digital: Will the move make it wiser? Management Accounting Research , 31 , 118-122
van Bunderen, L. (2018). The whys and whens of intra-team power struggles. RSM Discovery-Management Knowledge , 34 (2), 16-18
