What business processes were primarily impacted by the deficiencies in the redesign of certain controls at Benihana?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
es in the control activities component of the COSO framework described below:
- Management identified there is a lack of segregation of duties as it relates to the review of journal entries.
- In addition, management identified the following deficiencies which, in the aggregate, constitute a
- material weakness:
● The Company's redesign of certain controls throughout 2021 did not contemplate all the relevant design elements of control activities necessary to address the risks of material
misstatement, as well as the completeness and accuracy over the information used in those controls. Additionally, certain controls were not executed as designed or were performed without sufficiently documented supporting evidence. The business processes impacted primarily consisted of payroll, accounts payable and property and equipment. Additionally, in certain cases controls were redesigned and implemented without a sufficient period of time remaining to evidence operating effectiveness.
- The Company did not design and maintain formal and effective controls over user access to certain information systems to ensure adequate restriction of users and privileged access to venue level transaction processing applications and IT systems maintained by third parties. As a result, it is possible that the Company's business process controls that depend on the accuracy and completeness of data or financial reports generated by these information technology systems could be adversely affected due to the lack of operating effectiveness of information technology controls.
- In certain instances, the Company determined there was inappropriate application of technical accounting pronouncements for certain transactions and disclosures.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company's redesign of certain controls throughout 2021 did not fully address the risks of material misstatement or ensure the completeness and accuracy of information used in those controls. Additionally, some controls were not executed as designed or lacked sufficient documentation. As a result, the business processes most affected were payroll, accounts payable, and property and equipment. In some instances, controls were redesigned and implemented without enough time to demonstrate their effectiveness.
These control deficiencies also extended to information technology. Benihana did not maintain adequate controls over user access to certain information systems, which could compromise the accuracy and completeness of data or financial reports generated by these systems. Furthermore, there were instances of inappropriate application of technical accounting pronouncements for certain transactions and disclosures.
While these material weaknesses did not lead to a material misstatement of the annual or interim consolidated financial statements, they did create the potential for material accounting errors. Benihana has taken steps to remediate these weaknesses, including modifying the journal entry review process and increasing the precision of control activities related to payroll, accounts payable, and property and equipment. They have also improved IT user access security and hired additional experienced accounting personnel.