In this memorandum, I will discuss what procedures Vince Patton should implement to prevent future violations of the California Alcoholic Beverage Control (ABC) regulations, as well as other company violations. I will then address how Patton should handle the three employees who violated the regulations. PROCEDURES Carter Mario, George Pavlov, and Joe Roberts violated numerous Westchester Distributing, Inc. and ABC regulations. In one instance, Mario and Pavlov bribed a customer to purchase beer by giving him a “two-dollar-per-case kickback”, a clear violation of ABC regulations.
To prevent future violations of the ABC regulations, Vince Patton should implement more control and monitoring activities to establish a strong boundary system within the company. While Westchester’s incentive quotas and bonuses are good tactics to motivate employees to achieve goals, they could have incentivized Mario to offer a kickback to a customer. In addition, Patton’s performance measure of casesper-stop is part of a good diagnostic system, but even a good diagnostic system will not operate properly without a solid boundary system.
Therefore, Patton should create a clear segregation of duties within business procedures so that Mario and Pavlov are not the only ones completing the sales and transactions. If there is another person who double-checks the accuracy of transactions, as suggested in the Basics of Internal Control list, this person could catch transactions that violated ABC regulations. Although Roberts reviews and signs-off on reports before they are forwarded to Patton, a deeper division of duties will help to ensure that no one is violating ABC procedures.
Furthermore, Patton stated that Roberts seemed unaware of the “ABC regulations in this area because Westchester is responsible even if the owners are not aware of the violation”. Patton should clearly write out the ABC procedures because this could help employees understand what constitutes violating these rules and the detrimental effect of breaking the rules. In regards to the falsification of expense reports, including fabricated lunch receipts and broken bottle claims. Patton should enact an authorization procedure for the expense reports.
Employees at Westchester frequently take advantage of the system and write in their lunch expenses or submit broken bottle credits without receipts. For example, Carter recovered $60 “by submitting false luncheon receipts on his monthly expense report”. Patton should require proper documentation and implement a designated system or person to authorize the approval of receipts before reimbursing employees. To mitigate the misappropriation of firm assets. Patton should employ the use of physical controls, such as security locks.
Right now, the majority of employees have access to the neon beer signs. Instead, employees should be required to get approval before the neon lights are unlocked for them to access. Furthermore, Patton should employ a “formal control mechanism to account for or reconcile the signs installed at the over 1,000 retail establishments where Westchester had installed displays”. Independent checks and reconciliation procedures by the internal audit team or an external auditor would be a useful way to keep track of the signs and other company assets.
RECOMMENDATIONS While all three employees contributed to the violations of the company Standards of Conduct and ABC regulations, they contributed in different degrees. Carter Mario was one of the worst violators. He was the one who initiated offering the kickback to the customer and bribing him with three neon beer signs. Previous to this situation, Patton had already suspected that he was stealing from the company. Carter Mario also persuaded his sales manager, George Pavlov, to go through with the deal to bribe the customer to buy the beer, even though Pavlov was uncomfortable with the situation.
Lastly, Joe Roberts, the V. P. of Administration, handled the situation incorrectly by attempting to settle the issue himself without talking to Elizabeth Jones and Vince Patton. While I believe that Mario should be fired, this is not quite feasible for the company. Unfortunately, if Patton fires Mario, the whole company would suffer. Due to the ABC regulations, if Mario were to report what happened, “Westchester would be closed down for 45 days and Carter Mario would get away scot-free”. Therefore, Patton should keep Mario in the company but demote him to a driver.
Being a driver is an extremely tough job, but it keeps Mario in the company while teaching him to be humble. On the other hand, I believe that Patton should decrease George Pavlov’s salary. Since Pavlov felt uncomfortable with the situation and turned to Joe Roberts for help, Pavlov should not have as serious consequences as Mario. By decreasing his salary, it shows that Patton is taking his actions seriously. Pavlov is still a key sales manager so keeping him in this position is the best move for the company.
Unfortunately, Pavlov’s actions do violate ABC regulations so by simply decreasing his salary, it does not send a strong message to other employees that a violation of regulations is not a severe and punishable action. In regards to Joe Roberts, I believe that Patton should set up a weekly meeting with Roberts to encourage open communication. As the case stated, Patton seemed unaware of the ABC regulations and Patton did not have bad intentions. One negative consequence of this punishment is that it minimizes Roberts’s actions. Patton, however, relies heavily on Roberts and the company would not be able to operate fully without him.