In this morning’s Rant Dear Jim: I Had The 6th Sense Wrong, I suggested you read this local news article: Santa Rosa County clerk's office theft over e-payment prompts change.
I am going to first give you my analysis of the article and then I am going to help you see your future before you receive that hot potato yourself.
Analysis:
1) The Buck Stops Here with the County Comptroller, as he is responsible for all accounting procedures. The County Attorney is off the hook as he is only responsible for problems passed to him. Note that all attorneys only make money when you step in shit and they have to clean your shoes. They are not responsible for knowing where you are going to step next every day the rest of your life.
2) If you think your business is running perfectly you haven’t looked at it lately.
Over time things move and change on you through mission creep. That is what happened here. But this was big mission creep as it involves big payments, not just little checks. In my opinion the comptroller might be needed to be replaced and have fresh eyes come in and relook at everything that is needed now and might have to be changed again in a very short time due to the collapse! In other words, the Comptroller's role may be changed in the fight for survival.
The job needs a new fresh focus on the overall system. If nothing else, hire a consultant or second understudy to flowchart everything and prepare contingency plans.
Personal Note: As a former Financial Controller most of my career, I had personal rules I lived by. One was what I called humorously called the “Whale’ ˈmi-(ˌ)nō theory"; if overwhelmed, take care of the big fish first. That Comptroller let the big fish get away.
3) The crux of the problem is the Accounts Payable department changed its mission from A/P to ATM machine.
Prior to electronic money, a paper check was mailed to the vendors and that zeroed out the accounts. The cashed check was the receipt of A/P’s payment. The vendor could then deposit it into any bank account he wanted to, as that was his business.
Today A/P employees use banks as ATM machines and money payment systems to save postage and remind them of payments due. They are now trained in that mindset.
Now with electronic money, the step that appears to have been shorted in many ways was to foresee fast electronic banking changes. Prior to converting A/P to electronic deposits, each vendor should have to provide a completed form signed by a company officer authorizing certain people to be able to make changes to that bank account. This is next to naming check signers.
This form should also require a new form to be completed to add, delete or make any other changes to the vendors payment system.
Then, that form should contain a statement that the purpose of the electronic payment system is for the benefit of the vendor, and he Hold(s) the payer Harmless if anything goes wrong with that system. Thus the vendor is always the responsible party if anything goes wrong.
If you think this is too much, consider the company making one employee a check signer. Who’s responsibility is it if that employee quits with a few blank checks and the bank is not informed?
Immediate Future
I have been warning for many years about the chaos when the banks begin to fail. What I saw was a blow to all commerce as we crawl out and try to rebuild business to replace the failed ones.
How will money be transferred? If a grocery chain orders $150,000 in inventory needed, how will the purchase agent pay for it? Before he had a line of credit at bank ABC and wire the payment upon shipment. It was that simple.
But now the shipper doesn’t know the condition of bank ABC or if your grocery chain is insolvent. Nor do they know the condition of your new bank.
Soon the shipper will begin to lose letters in their alphabet and will only offer the following term “GBD” (Gold Before Delivery). This may then require you to open a new bank account that holds the mortgage on your entire business assets and your kids. It will also force you to Factor (pledge) your entire Accounts Receivable to that bank.
That new bank, DEF, will require that all your vendors immediately reroute their payments to that bank so they can manage it. (Manage means get their cut first). So now your entire office is moving half of your accounting system to accommodate the new bank. This may take a week or two before you can restock your shelves.
Then in a month or two DEF bank bellys up and now your Accounts receivable is held up in legal hell as you go out of business.
So, back to my visions, I saw this cycle through two or three times until the world stabilizes, probably over a three month period. In that time period, you may be lucky to receive anything more than one shipment.
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This is why businesses must be aware of the degradation of electronic money during the chaos and have survival On The Fly plans in place.
This holds true for those employees who have paychecks electronically sent. You had best have a back up plan, as in another bank account just in case.
If you are a business and your electronic payment system may collapse because 15% of the receiving banks closed creating chaos, what are you going to do? Oh hell, I know, you’ll just print checks again. But there are no checks in stock and the printers are overwhelmed from orders.
So now you are running a half-ass electronic system and a half-ass typed system on home made checks. But that isn’t so bad because you have an excuse to be slow on payments, right?
But then you realize your customers are doing the same thing and not paying you. . . . . . . . . . . and on it goes.
Are you prepared to abandon your business and bring up a new one?
You had better face the fear now and try to have plans while you can reason.