Private Fitness LLC
Content
I.
State tatem ment of the the probl roble em:
What internal control systems should Rosemary establish to protect her business assets and mitigate risks in the future? II. II.
Iden Identi tifi fica cati tion on of of Crit Critic ical al Iss Issue ues s
III. II.
Rosemary went into business to increase her standard of living by capitalizing on her reputation and knowledge in the growing fitness field and to have more time to spend with her two young children. To open the club, Rosemary had to use almost all her personal savings, plus she had to take out a bank loan. he spent !"#$% to renovate the facility of her club and ac&uire the necessary fitness e&uipment. %ate 'offman, one of the hired instructors as well as Rosemary(s long time friend, was primarily tasked to do the marketing, facility up keep, scheduling of appointments and records keeping of the business he was paid a salary plus commission based on gross revenues as compared to the other instructors who were paid on commission basis only. )uring normal business hours when %ate was teaching a class, one of the other instructors, or sometimes a part*time clerical employee, was asked to staff the front desk in return for an hourly wage Rosemary was still in the process of building the volume necessary to operate at a profit but %ate(s marketing efforts were proving effective as the number of clients were gr owing giving Rosemary hopes that by the end of business year, they would be earning profits. Rosemary gradually realized that %ate was stealing from the club as cash amounts had disappeared while one client was reportedly writing personal checks directly to %ate rather than turning it over to the business, which %ate admitted eventually. Rosemary had two ma+or problems The theft of cash and the unrecorded revenue which are internal control issues that she has to address, and secondly, the issue of assuming the managerial role herself as she has significant family responsibilities to attend to.
Dis Discuss ussion ion an and An Analys lysis
The business is plagued with a couple of control system issues causing problems to further escalate. This is due to the fact that Rosemary and her personnel don(t have any business background and e-perience. elow are the identified issues based on the case critical factors 1. No proper proper recordin recording g and monitori monitoring ng of revenues revenues and expend expenditure itures s
/ain source of revenue is from the number of clients attending the classes and private workouts. The problem is, the business doesn(t have an automated system or at least a proper manual recording system to monitor the number of attendees and their fees, thus, resulting to %ate taking advantage of this ma+or loophole. ame goes with the tracking of its daily and monthly e-penses which includes includes differences in its payroll. These e-penses need to be recorded and tracked accurately in order to come up with reliable financial report for forecasting and budgeting.
. No scheduling system for instructors and employees.
With a limited number of personnel, schedule of staffing and classes are not clearly defined. With a challenge like this, capacity utilization is not properly ma-imized causing an additional e-pense in the form of a part time clerical employee filling in for %ate(s desk work. !. "osemary#s family related concerns
/ain reason why Rosemary went into business is for her to spend more time with her family meaning she can never guarantee full control of business operations. This should be a big obstacle for her to go through as most businesses need owners to go full time especially on its formative stages. 0. $unds are limited 1fter almost e-hausting all of her savings to put the business up, it appears that Rosemary has limited funds to invest on added personnel and e&uipment for better monitoring and tracking of business activities. The decision for her to remedy the issues on hand would also depend on available resources including funds and how profitable the business is at the moment.
I%.
Alternative course of action
". 'ire a competent manager to oversee the daily operations and assign %ate 'offman as permanent fitness instructor or fire her if she won(t take the offer. The new manager will basically assume %ate(s role and responsibilities in marketing, personnel handling, records keeping and facilities monitoring but with more e-pertise and better efficiency. The new manager must be at least e-perienced in the role and should have worked previously in a related field. The manager will have to be paid with a fi-ed salary and commissions based on business revenues. 1dvantages a2 'andling of business operations will be more focused and concentrated which would translate to better efficiency b2 taffing will be properly addressed together with scheduling of classes c2 3itness facilities are better maintained d2 etter marketing efforts as strategies will be implemented accordingly with more traction. e2 4olicies will be enforced without biases since manager doesn(t have any attachment to the personnel )isadvantages a2 'iring a new manager might be costly considering limited funds and might be time consuming b2 trained friendship between %ate and Rosemary c2 The risk of new manager not delivering and meeting e-pectations
5. Rosemary will go full time on managing the business and keeping accounting records. Rosemary will have to sacrifice family time in order to get her hands full on the business. This might be a short term solution or long one depending on how the business will grow once she takes over into the business operations. 1dvantages a2 Reduces the potential for employee fraud and thefts. b2 'er active managerial role will likely portray a positive image to customers about her seriousness and commitment to the business c2 Rosemary will gain more knowledge in running her business d2 6o additional cost for hiring manager )isadvantages a2 he will significantly reduce her time spent on family b2 Work life balance will be disrupted and pressure from both might not be easy to overcome c2 )efeats her main purpose in putting up the business
%.
"ecommendations
ased on the alternative courses of actions above and thorough analysis of its pros and cons, 7 recommend that Rosemary implement alternative number ". 1lthough costly at first, getting a competent manager in the long run could increase revenues and therefore accumulate profits for the business. 7mplementation of the chosen alternative should also deal with the internal controls needed within the business. elow tackles in detail on how these controls should be addressed in relation with hiring a new manager and relegating or firing %ate. Actions control 8 'iring of a new manager and assigning %ate to different role is itself
considered as an action control as it accomplishes separation of duties. 'owever, it should not end on this note as Rosemary, together with the new manager, can implement more. 9ne viable plan to take after hiring a new manager and sorting everything out is the investment of a cctv camera, locked cash bo- and usage of receipts which could prevent theft and fraudulent activities as well as foster better records monitoring. "esults Control 8 The new manager should implement a rewards system for each
personnel when it comes to client referrals and the number of handled classes. This should solve two issues faced by the organization. :mployees will be motivated to pitch for more more clients which should aid on the marketing side of the business and second, this should keep them away from illegally taking advantage of business assets for monetary gains. &ersonnel Control 8 9ne of the responsibilities of the new manager is managing its people
which entails giving the right support system for development of skills and addressing of behavioral problems. The new manager should also be responsible in the selection of new personnel that should fit with business culture and policies. 'e should also be the one to delegate task to tenured employees like %ate so as to give them direction and growth.
State tatem ment of the the probl roble em:
What internal control systems should Rosemary establish to protect her business assets and mitigate risks in the future? II. II.
Iden Identi tifi fica cati tion on of of Crit Critic ical al Iss Issue ues s
III. II.
Rosemary went into business to increase her standard of living by capitalizing on her reputation and knowledge in the growing fitness field and to have more time to spend with her two young children. To open the club, Rosemary had to use almost all her personal savings, plus she had to take out a bank loan. he spent !"#$% to renovate the facility of her club and ac&uire the necessary fitness e&uipment. %ate 'offman, one of the hired instructors as well as Rosemary(s long time friend, was primarily tasked to do the marketing, facility up keep, scheduling of appointments and records keeping of the business he was paid a salary plus commission based on gross revenues as compared to the other instructors who were paid on commission basis only. )uring normal business hours when %ate was teaching a class, one of the other instructors, or sometimes a part*time clerical employee, was asked to staff the front desk in return for an hourly wage Rosemary was still in the process of building the volume necessary to operate at a profit but %ate(s marketing efforts were proving effective as the number of clients were gr owing giving Rosemary hopes that by the end of business year, they would be earning profits. Rosemary gradually realized that %ate was stealing from the club as cash amounts had disappeared while one client was reportedly writing personal checks directly to %ate rather than turning it over to the business, which %ate admitted eventually. Rosemary had two ma+or problems The theft of cash and the unrecorded revenue which are internal control issues that she has to address, and secondly, the issue of assuming the managerial role herself as she has significant family responsibilities to attend to.
Dis Discuss ussion ion an and An Analys lysis
The business is plagued with a couple of control system issues causing problems to further escalate. This is due to the fact that Rosemary and her personnel don(t have any business background and e-perience. elow are the identified issues based on the case critical factors 1. No proper proper recordin recording g and monitori monitoring ng of revenues revenues and expend expenditure itures s
/ain source of revenue is from the number of clients attending the classes and private workouts. The problem is, the business doesn(t have an automated system or at least a proper manual recording system to monitor the number of attendees and their fees, thus, resulting to %ate taking advantage of this ma+or loophole. ame goes with the tracking of its daily and monthly e-penses which includes includes differences in its payroll. These e-penses need to be recorded and tracked accurately in order to come up with reliable financial report for forecasting and budgeting.
. No scheduling system for instructors and employees.
With a limited number of personnel, schedule of staffing and classes are not clearly defined. With a challenge like this, capacity utilization is not properly ma-imized causing an additional e-pense in the form of a part time clerical employee filling in for %ate(s desk work. !. "osemary#s family related concerns
/ain reason why Rosemary went into business is for her to spend more time with her family meaning she can never guarantee full control of business operations. This should be a big obstacle for her to go through as most businesses need owners to go full time especially on its formative stages. 0. $unds are limited 1fter almost e-hausting all of her savings to put the business up, it appears that Rosemary has limited funds to invest on added personnel and e&uipment for better monitoring and tracking of business activities. The decision for her to remedy the issues on hand would also depend on available resources including funds and how profitable the business is at the moment.
I%.
Alternative course of action
". 'ire a competent manager to oversee the daily operations and assign %ate 'offman as permanent fitness instructor or fire her if she won(t take the offer. The new manager will basically assume %ate(s role and responsibilities in marketing, personnel handling, records keeping and facilities monitoring but with more e-pertise and better efficiency. The new manager must be at least e-perienced in the role and should have worked previously in a related field. The manager will have to be paid with a fi-ed salary and commissions based on business revenues. 1dvantages a2 'andling of business operations will be more focused and concentrated which would translate to better efficiency b2 taffing will be properly addressed together with scheduling of classes c2 3itness facilities are better maintained d2 etter marketing efforts as strategies will be implemented accordingly with more traction. e2 4olicies will be enforced without biases since manager doesn(t have any attachment to the personnel )isadvantages a2 'iring a new manager might be costly considering limited funds and might be time consuming b2 trained friendship between %ate and Rosemary c2 The risk of new manager not delivering and meeting e-pectations
5. Rosemary will go full time on managing the business and keeping accounting records. Rosemary will have to sacrifice family time in order to get her hands full on the business. This might be a short term solution or long one depending on how the business will grow once she takes over into the business operations. 1dvantages a2 Reduces the potential for employee fraud and thefts. b2 'er active managerial role will likely portray a positive image to customers about her seriousness and commitment to the business c2 Rosemary will gain more knowledge in running her business d2 6o additional cost for hiring manager )isadvantages a2 he will significantly reduce her time spent on family b2 Work life balance will be disrupted and pressure from both might not be easy to overcome c2 )efeats her main purpose in putting up the business
%.
"ecommendations
ased on the alternative courses of actions above and thorough analysis of its pros and cons, 7 recommend that Rosemary implement alternative number ". 1lthough costly at first, getting a competent manager in the long run could increase revenues and therefore accumulate profits for the business. 7mplementation of the chosen alternative should also deal with the internal controls needed within the business. elow tackles in detail on how these controls should be addressed in relation with hiring a new manager and relegating or firing %ate. Actions control 8 'iring of a new manager and assigning %ate to different role is itself
considered as an action control as it accomplishes separation of duties. 'owever, it should not end on this note as Rosemary, together with the new manager, can implement more. 9ne viable plan to take after hiring a new manager and sorting everything out is the investment of a cctv camera, locked cash bo- and usage of receipts which could prevent theft and fraudulent activities as well as foster better records monitoring. "esults Control 8 The new manager should implement a rewards system for each
personnel when it comes to client referrals and the number of handled classes. This should solve two issues faced by the organization. :mployees will be motivated to pitch for more more clients which should aid on the marketing side of the business and second, this should keep them away from illegally taking advantage of business assets for monetary gains. &ersonnel Control 8 9ne of the responsibilities of the new manager is managing its people
which entails giving the right support system for development of skills and addressing of behavioral problems. The new manager should also be responsible in the selection of new personnel that should fit with business culture and policies. 'e should also be the one to delegate task to tenured employees like %ate so as to give them direction and growth.
