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Delegation without Abdication

Cathy Muringo’s business, Experience Mitumba Bales, grew faster than she expected. She opened a shop in Gikomba Market and also established herself as a broker in second hand clothes. She had also taken up a part-time commission based sales job with an Australian second hands clothes wholesaler while at the same time marketing her company on social media. She decided to employ an assistant – Sarah – to run her retail and wholesale business since the two marketing assignments were taking a lot of her time. Due to her improved financial status, Cathy was also able to engage in some additional social activities which in turn reduced her involvement in the business. In addition, she adopted a work from home model where she would sell on social media and make arrangements for delivery or collection of the goods on phone.

The clients who preferred collecting their bales physically would go to her shop in Gikomba market. These clients would hardly meet Cathy in person due to her work from home model. They therefore developed a strong bond with Sarah the shop assistant to the extent that a majority referred to the shop as Sarah’s shop. The bond was further strengthened when, due to frequent meetings, Cathy started diverting her calls to Sarah’s personal number. Cathy noted something was amiss when one day, a client met her at the Gikomba outlet and insisted on speaking so Sarah.

Days after the encounter with the client who insisted on speaking so Sarah, Cathy received a call from a client who was complaining about a poor quality bale. During the discussion, the client informed Cathy that he had one good quality and one bad quality bale. At this point, Cathy noted that in her records, the client had bought only one bale. Upon further inquiry she realized that Sarah had bought a bale from one Cathy’s suppliers and on-sold directly to this client. More investigations revealed that Sarah had built a personal portfolio of clients who she was serving at Cathy’s outlet. Some of these clients are the same that Sarah had acquired through her marketing efforts while others were referrals from Cathy’s satisfied clients and other contacts. Sarah was therefore using Cathy’s business premises to build and run her business while at the same time receiving a salary from Cathy. In addition, Cathy was bearing the risks associated with Sarah’s business.

This scenario is common among many small and micro enterprises. Some business owners delegate and abdicate since they may be full-time employees and therefore operate businesses as a secondary occupation. Others, like Cathy, could delegate some responsibilities due to work volume and rapid growth of the business.  Regardless of the reasons, most business owners forget about the importance of operational controls and risk mitigation.

Business persons like Cathy should, while engaging employees, think through the risks exposures that come with leaving your business in the hands of employees, no matter for how short a time. These risks include theft of cash or stock, conflict of interest such as use of employer premises to serve one’s clients and mistreatment of clients amongst other exposures. Business owners should thereafter think about the controls that should be implemented in order to mitigate the risks including financial, physical and technological amongst other controls.

Business owners must utilize a combination of controls since none of them work in Isolation. For example, while automation of payments (a financial control) e.g. by use of electronic platforms such as cards and mobile money pay bill services may help in mitigating risk of loss of cash, it does not prevent an employee from lying to buyers that the automated payment is not working and therefore receive cash payments. It therefore needs to be supplemented by physical controls such as monitoring customer flow through CCTV cameras, surprise checks and stock taking amongst others. The two controls would also not be very effective if not supplemented by human resource controls such as pre-recruitment staff vetting and staff lifestyle audits.

The above measures help prevent fraud, enforce standards and monitor level of risks. In addition, the measures help in enforcing performance standards such as customer service and turnaround time. More importantly, for small and micro enterprises, they prevent erosion of capital through theft of goods, diversion of cash or misuse of employer premises by employees.

Dr. Weru Mwangi is the CEO & Lead Consultant at Ultimate Management Solutions, a firm specializing in training & consultancy in Finance, Governance, Strategy, Risk Management and Leadership Development.  He can be contacted on weru@umslgroup.com  

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