Internal Control and Home Improvement
Internal Control and Home Improvement
Lowe’s Home Improvement is a chain of retail home improvement based in the United States. It was founded in 1946 in North Wilkesboro, North Carolina. Lowe’s Home Improvement has expanded internationally into Mexico, Canada, and joint venture with Woolworths Limited in Australia. Lowe’s Home Improvement ranked 54 in Fortune 500 for 2012, decreasing four spots in 2011 (“Cnn money,” 2012). Lowe’s Home Improvement is the second largest retail home improvement chain, behind The Home Depot. There are 1,724 Lowe’s stores throughout United States, Canada, Mexico operating with more than 234,000 employees (“Lowe’s home improvement, 2012”).
Stakeholders are individuals, groups, or organizations that have a stake in the business. Stakeholders are categorize into two types: internal or external. Internal stakeholders can be owners, managers, and employees. External stakeholders can be suppliers, lenders, and customers (Worthington, 2009). Human Resource (Safety)
There are many safety rules in Lowe’s Home Improvement. “We strive to sustain a safety culture that integrates safety into all parts of our business. Safety is a core value of our company. We hold our leadership teams accountable for creating and maintaining a safe environment to work and shop. Safety practices are incorporated into each job task, and we believe training is critical to ensuring safety awareness and knowledge are maintained at the highest level” (“Focusing on safety,” 2012, p. 1).
When I was the Department Manager of Product Service, I was in charge of 70 percent of all resets in the store including display changes, merchandising refresh, and general product rotation. As an internal stakeholder (manager), I knew all the rules. However, some of these rules prevented me from accomplishing my job. Sometimes resets require me to get inside the bay to maneuver the products, beams, or shelves. This is strictly against Lowe’s policy, which states I should get an order picker (machine to hold me up). I understand the need for the rules, but sometimes they cannot be followed exactly (prior thoughts as a Department Manager). If I were to get hurt while doing, Lowe’s is liable for my injuries or death. Even though it clearly states it in our policy not to do these actions, it could not be proven that I was properly trained or ever informed about it. This is why it is important for all incidents to be reported. As an Assistant Store Manager, I must constantly coach and train my associates and document (validate). I must ensure every decision my employees makes is what is best for the business.
Employee incidents are known as workers’ comp claims that directly affect profitable. When the store reports the incident to our claims department, we are automatically deducted profits to pay for the expense. This can range from $10,000 to whatever. . Just recently, we had to pay for knee surgery for our outside sales representatives. Unfortunately, these claims can take many years to close, because the individual can continue to get treatment even after surgery. Typically, workers comp will attempt to pay the individual out before paying for surgery. If the individual accepts the buyout, they will lose their job.
An external stakeholder is the customers that come in the building. Lowe’s is just as liable for any injuries or damages caused to a customer as an employee is. Every morning an Assistant Store Manager must walk the Daily Safety Review (DSR) to verify the store is clean, clear, and safe. We must verify that all top stock, product, safety procedures, locks, and safety chains are up and operational. Recently, someone did not properly place a stack of trashcans in top stock. The trashcans were not standing on the tops and fell around 11:30am, luckily no customers or employees were hit with ten trashcans as they fell.
Customer incidents are known as general liability claims that directly affect profitable. When the store reports the incident to our claims department, we are automatically deducted profits to pay for the expense. This can range from $2500 to $25,000. Anything over $25,000 is distributed among the rest of the district. To make up $2500 in pure profit is to sell roughly $6,000 when you calculate employee salary, utilities, and facility cost. Marketing (Deceptive Advertising)
The Federal Trade Commission (FTC) oversees any deceptive claims of products or services. Recently, the FTC won a $40 million settlement against Sketchers’ toning shoes and apparel. Sketchers falsely represented clinic studies claiming their Shape-Ups, Toners, Tone-Ups, and Resistance Runners would help people lose weight, and tone and strengthen their butts, legs, and abdominal muscles. The most deceptive ad was used during Super Bowl featuring Kim Kardashian firing her personal training for a pair of Shape-Ups. Sketchers truly believed they would win the multiple lawsuits in different states, but choose to settle out for the ease of the company and individuals (Bachman, 2012).
Deceptive advertisement can negatively affect internal and external stakeholders. Customer service is the most important aspect of any business. Deceptive advertising can create a negative experience for customers, which directly affect employees. A bad customer service experience can dramatically cost any business thousands of dollars. The internet is the playground for anyone. This can create a bad reputation when individuals post on their Facebook, Twitter, or other social media sites. If a business loses its customers base, it cannot support its employees.
Recently, at my Lowe’s Store we had the state department conducting an internal audit on pricing. The last time this audit was done was in 2004. The audit required scanning 50 products and verifying the correct price is labeled. If the price was incorrect, this would be considered false advertisement or deceptive advertisement and Lowe’s would be fine thousands of dollars. Fortunately, we passed the audit with no issues. Accounting (Unethical Practices)
Accounting fraud will continue to happen if there is opportunity. There must be provisions that prevent opportunity. Olympus Corporation covered up $1.7 billion in accounting fraud. The three executives inflated company’s net worth for five years. Three executives pleaded guilty to covering up and firing the chief executive who originally found the discrepancy. This is one of the largest corporate scandals in Japan. The United States put in place corporate governance reform after the Enron scandal. These unethical behaviors can result in lawsuits from shareholders. After the Enron scandal, Senator Paul Sarbanes and Representative Michael Oxley (Sarbanes-Oxley Act of 2002) pushed a law through that changed regulation of financial practices and governance of corporations.
Internal stakeholders have large investments into their company. First, it is their livelihood. Second, they could own company stock. Lastly, if the corporation goes under what value does that company add to the individuals resume? Employees of large corporation rarely see their importance in the big picture of things. The employees build companies. No matter how low your position is you can directly affect the business positively or negatively. As managers it is my job to ensure that my employees are align with the company’s vision and mission.
External stakeholders can also be affected by unethical accounting practices. The most obvious example would be if the customer were also a stakeholder in shares. This can directly affect the value of the stock. Another example would be customers affected in small towns. For example, if in their small town there is no other hardware store but Lowe’s Home Improvement. What would happen if that Lowe’s store closed, where would citizens of the town go to get their supplies? How much farther would they have to travel? This creates a huge inconvenience and provides opportunity for other small convenience/gas stores charge more for product.
Awareness is the number one preventer in safety issues. Companies must develop incentives for employees to remain and operate safely. At Lowe’s if, a store goes 60 days accident free, there is a cook out that is hosted by the store. One time at my store, we went 265 days accident free, we held the highest accident free days in the division. Companies must develop and promote these incentives for employees to remain safe. This includes knowing when to get help and when to do it yourself. The saying “work smarter not harder” must be in every employees forefront.
Deceptive advertising is typically dealt with at corporate levels in retail. However, these corporations typically do not deal with the problem. The store level associates deal with the deception. At Lowe’s, we are told to take care of the customer. Depending on the situation, as managers we may be able to substitute items to appease the customer. I believe there should be a separate department that evaluates all marketing and advertisements. This may save the company millions of dollars from lawsuits of deceptive advertisements.
Companies that violate these ethics share common elements. Three common elements enable individuals to violate ethical or criminal misconduct in a corporation. 1. The availability of an opportunity
2. The existence of some form of pressure leading to an incentive 3. The capacity to rationalize.
These three elements are arranged in a pyramid. Opportunity is the top of the pyramid. Opportunity is at the top because without opportunity nothing would exist. To reduce or eliminate opportunity, companies must implement effective internal controls. These can include policies and procedures, audits, and departments who oversee (checks and balances). The best example of these internal procedures is a bank securing its money in a safe. These are designed to keep unwanted people out. Pressure is located at the bottom left corner. Pressure can come from managers using intimidation, family expectations (standard of living), personal vices, and poor decision-making.
For example, a manager may use intimidation and say, “You will be fired if you do not achieve your sales numbers”. This type of pressure can cause certain employees to go too far. The last element is rationalization located at the bottom right corner. The individuals we are talking about do not think they are evil; rather they justify their own misconduct. Some rationalization would be everyone does it, I deserve this, I am only borrowing the money, and the company can afford it. Unfortunately, there will be individuals who cross the ethical line. It takes the personal integrity of an individual to resist the opportunity. The best indicator of these individuals is there past performances (“Fundamental managerial accounting”, 2006).
To fix these issues requires appropriate checks and balances. Corporations must ensure they have policies and procedures to prevent such opportunities from existing. In addition, these policies must be validated consistently and frequently.
Bachman, K. (2012, May 16). Sketchers settle deceptive ad case with FTC for $40m. Retrieved from http://www.adweek.com/news/advertising-branding/skechers-ad-case-ftc-40m-140577 CNN money. (2012, May 21). Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2012/snapshots/2686.html Edmonds, T., Tsay, B., & Olds, P. (2006). Fundamental managerial accounting concepts. Retrieved from http://highered.mcgraw-hill.com/sites/0073526797/student_view0/ebook/chapter1/chbody1/ethical_consideration s.html Focusing on safety. (2012). Retrieved from http://www.lowes.com/cd_Focusing on Safety_323526845_ Lowe’s Home Improvement. (2012). Retrieved from http://www.lowescreativeideas.com/social/our-vision-and-values.html Slodkowski, A. (2012, September 25). Japanese camera and medical equipment maker Olympus Corporation and three of its former executives pleaded guilty on Tuesday over charges related to a $1.7 billion accounting cover-up in one of Japan’s biggest corporate scandals. Retrieved from http://www.reuters.com/article/2012/09/25/us-olympus-trial-idUSBRE88O01920120925 Worthington, I. (2009, February 09). Improvement and innovation. Retrieved from http://www.improvementandinnovation.com/features/article/stakeholders-and-how-they-affect-your-business/
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 21 December 2016
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