Trust is a popular subject for business books. There are two excellent ones that deal with the impact of creating internal trust within an organization: “The Speed of Trust,” by Stephen Covey, and “Leaders Eat Last,” by Simon Sinek. These books address trust as a cultural issue that impacts the way people behave inside an organization. Where trust is lacking, organizations build complicated structures that limit employee effectiveness, prevent them from making decisions, and cause them to disengage. Consider environments where information is not shared with teams, decisions can only be made with a supervisor in attendance, and returns are not allowed without receipts. In this case, the absence of trust is usually frustrating and usually demoralizing. While I agree that trust is an important aspect of successful organizations, from an accountant’s perspective, qualification is needed. Successful organizations should, as Ronald Reagan suggested when dealing with the Soviet Union back during his presidency, “Trust but Verify.” To take it a step further, these organizations, particularly small businesses, should foster an environment of trust that is supported by processes and procedures that have built-in checks and balances that don’t have a negative impact on the company’s culture. Here are some examples of checks and balances that can be applied across a business: Sales Trust. Everyone in the company should have access to information about sales results as often as possible. Verify. Only certain people should be given the authority to approve credit reports provided for new customers. The accounting department or owner, not the sales team leader, should be allowed to approve credit reports and authorize sales for new customers. Expenses Trust. Employees should be authorized to incur expenses on behalf of the company. Verify. Expense policies should include clearly established limits for certain types of expenditures and should be approved by the appropriate supervisor before being authorized for reimbursement. Customary spending limits and authorized purchases should be clearly documented in employee manuals. Bank Account Trust. Designated employees should be authorized to make bank deposits on behalf of the company. Verify. Separate people should be opening the mail, recording the deposit, and reconciling the bank statement. Accounts Payable Trust. Allow a designated employee to create new vendors as needed for invoice payment. Verify . An owner should review a list of vendors added and deleted periodically to verify that all vendors are valid. If possible, duties should be separated between those writing the checks and those performing the bank statement reconciliation. Inventory Trust. Designated employees should have access to the warehouse or storage area. Verify. Use physical counts to verify that quantities on hand agree to the quantities shown in your accounting software. Use separate inventory adjustments to account for any shortages, and watch for negative trends in portable, high-value items. An environment of interpersonal trust, mutual respect and loyalty can co-exist with a system of good internal controls, clear documentation, and checks and balances. Good systems free employees from having to make tough decisions on their own. When people are given clear guidelines and the authority to make the right decisions, they prosper and the company succeeds. By: Geni Whitehouse
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