Avisar News

Being in Control Comes With its Own Responsibilities

Category Management

Henri Fayol, a French mining engineer, published one of the first principles of management guidelines in 1914. One of the more memorable of these was this:

“Control of an undertaking consists of seeing that everything is being carried out in accordance with the plan which has been adopted, the orders which have been given, and the principles which have been laid down. Its object is to point out mistakes in order that they may be rectified and prevented from recurring.”

By necessity, owner-managers are required to be in control of every aspect of their business, since they’re ultimately responsible — and potentially liable — for matters including:

  • sales and receivables
  • purchases and payables
  • banking and borrowing
  • ensuring workplace and employee safety
  • withholding and paying taxes
  • collecting and remitting HST
  • protecting data security and confidentiality
  • addressing labour disputes
  • co-ordinating a union

But what are the possible consequences should management be unable to fulfill all of these responsibilities?

Sales and Receivables

Not monitoring sales or collecting accounts receivable may mean going to small claims court to seek payment for receivables up to $25,000 (in Ontario). The cost of gathering data and time presenting yourself in court or hiring a paralegal may cost more than the amount that you’ll ultimately be writing off.

Purchases and Payables

Decide that you don’t want to pay an outstanding invoice with a supplier and you may be denied further service or product, which could bring your business to a standstill. At the very least, expect annoying collection calls — at the extreme end, you could face legal action that will swallow up your time and money while you defend yourself. Continuously bounce cheques, and suppliers may demand cash-on-delivery or reduce your credit status, thus also hampering your ability to produce product or deliver service.

Banking

If you do not control your bank balance and are routinely going into overdraft, you may have to manage with a poor credit rating, interest and overdraft charges, and holds put on your deposits.

Borrowing

Borrowing for any business asset puts the business and owner-manager at risk if the loan’s terms and conditions are not met.

  • Caveats in lending contracts that are broken may result in the loan being called, creating a cash crisis in the business.
  • Failure to repay a loan on a secured asset will result in the asset being seized — try running an operation without one of your key pieces of equipment.
  • If you have signed a personal guarantee on a business loan, your personal assets may be subject to seizure as well.

Safety

The consequences of neglecting safety within the workplace are multifaceted:

  • Your business will be subjected to fines and penalties from WSIB (Workplace Safety and Insurance Board).
  • Insurance and borrowing rates will increase in light of an accident.
  • In severe situations, your worksite may be shut down for failure to comply with safety rules.
  • If there is catastrophic injury or death, your business and you may be held personally liable as an officer or director of the company.

Withholding Taxes

Income tax, Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums are considered “funds collected and held in trust by an employer.” Because this money belongs to your employee, the Canada Revenue Agency takes a hard line for businesses who are not remitting:

“If you do not fulfill your obligations or comply with our payroll requirements, you may be assessed a penalty, interest, or incur other consequences.

If you do not comply with the deducting, remitting, and reporting requirements, you may be prosecuted. You could be fined from $1,000 to $25,000, or you could be fined and imprisoned for a term of up to 12 months.”

[From the CRA website: Employer’s Guide – Payroll Deductions and Remittances]

GST/HST

Not filing GST or HST (Goods and Services Tax or Harmonized Sales Tax) will not only mean penalties and interest levied to your business, it will no doubt result in a visit from the CRA to review your business operations to determine if there are deficiencies within your accounting system contributing to your failure to file. Since you are really collecting GST/HST funds from your clients on behalf of the government, the CRA takes strong exception to the fact that they have not received those funds.

Income Tax

Not filing corporate income tax can mean fines and penalties if corporate taxes are owing, and potentially worse consequences. Although rare, jail time can result if a demand for filing is made and the business does not comply.

If taxes have not been filed for several years, the CRA may arbitrarily file a tax return and send the business a Notice of Assessment that says funds are owing. This usually encourages corporations to file their returns on their terms.

When tax returns have been filed, but income tax owing has not been paid, the CRA will freeze your corporate bank account. This effectively limits your ability to use that account to operate your business. Payroll, automatic deposits, automatic payments — in effect, all bank transactions — will come to an abrupt halt.

Data Security/Confidentiality

Organizations that are required to collect personal information as part of their normal operating procedures must also, “protect information against loss or theft as well as safeguarding the information from unauthorized access, disclosure, copying, use or modification.” These requirements apply regardless of the format in which the information is stored.

Once this information is obtained, many private-sector businesses within Canada are required to follow the guidelines laid out in the Personal Information Protection and Electronic Documents Act (PIPEDA — note that a different provincial privacy legislation may apply in Alberta, British Columbia, and Quebec). One section of this Act gives people a right to access their personal information held by your company. Employers are required to provide this information on request, so it is incumbent upon them to be able to access and provide it. There are some exceptions, so check with your legal counsel if you are not sure.

Labour Disputes

Becoming involved in unresolved labour disputes is an employer’s worst nightmare, and it results in provincial Ministry of Labour or its equivalent getting involved in the dispute process. Management must be aware of employment standards, as well as those that apply to workplace health and safety.

Union Negotiations

Employers make a serious error if they fail to treat unionized employees fairly, or do not submit deductions for union dues and other employee deductions required under a collective bargaining agreement. Not only will such an approach give rise to legal action for collection; it could also mean a union refusing to provide employees for projects that require unionized workers. The bottom line? Your business income suffers.

A successful owner-manager understands that, while they have the appearance of being in charge and in quasi-control of their company, that control is only valid if their operation complies with the multiplicity of third-party plans that have been adopted, external orders they’ve have been given and third-party principles laid down in laws or regulations.

How can an owner-manager rectify and prevent the continuous invasiveness of third parties and thereby maintain control over their operations? It is only by fostering a culture of process and procedures within an organization that follow external rules and regulations.