What internal control deficiency did Benihana identify related to the review of journal entries?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, a material weakness was identified regarding internal controls over financial reporting as of December 31, 2021. Specifically, management determined there was a "lack of segregation of duties as it relates to the review of journal entries." This means that the same individuals who were recording journal entries also had the authority to review and approve them, creating an opportunity for errors or fraud to go undetected.
To address this deficiency, Benihana modified its journal entry review process. The revised process requires senior members of the management team, who are not involved in the journal entry recording process, to review journal entries. This change aims to enforce a proper segregation of duties, ensuring that a different set of eyes examines the entries to catch any potential issues.
Benihana believed that the steps taken improved the effectiveness of their internal control over financial reporting and determined that the new or redesigned controls were operating effectively as of December 31, 2022. Prospective franchisees should be aware of these past weaknesses and the measures Benihana has taken to correct them, ensuring that proper financial oversight is in place.