Don’t be an ostrich
One of my clients had some really powerful, and very useful management information in the form of a report from their custom built computer system. The report gave great detail on the thousands of daily & weekly transactions, allowing the client to see profit & loss by individual item, or analysed by groups or by territories.
They had an issue with another report from the system. This second report listed all the supplies that they had paid for, but had not yet arrived – Goods in Transit – and this report was getting bigger and the value of GIT was getting larger & larger. The value of GIT in the monthly accounts did not tie back to this report.
When we investigated, it turned out that both reports were wrong, and indeed were being used in a way for which they were never intended. The business had overstated its profits by almost £1m over a period of some 3 years.
The accounting team had found a small problem 3 years ago when the stock records didn’t match up to the profit & loss report that management relied upon so heavily. They looked at the GIT report, realised that some of the information on the report was wrong, and adjusted the value of GIT to make everything balance. In short, they fudged the numbers. It was a pretty small adjustment for the size of business.
3 years later, when I was involved, that little adjustment had been added to and had grown, so that it was now just under £1m.
The accounting team played Ostrich – head in the sand, hoping the problem would go away instead of dealing with it when it was tiny.
The trouble is when you play Ostrich your rear is somewhat exposed, and your problem will come back to bite you.
Deal with the problems when they are still little problems