In this economy, there are a lot of desperate people who are just barely surviving. Thus it is not surprising that Small Business Fraud has steadily increased. Unfortunately, Small Business owners are most vulnerable to being the victims of fraud, especially check fraud. Because fraud can be a "one and done" occurrence, i.e., the company does not survive the loss, it important that your Accountant should be asking you the following questions:
1. Do you reconcile your bank account on a monthly basis?
Banks have a limit on how long that they will correct errors, thus the sooner that you can find possible errors, the better. Also, you don't want your Bookkeeper reconciling the bank account because he or she is making entries to the General Ledger bank account.
2. Is the bank statement sent to your home address?
If not, it should be. The reason is that you want to be the first to see the statement, so you can review the transactions. Ideally, you would also want to get copies of the cancelled checks, so you can see if any have been forged or altered.
3. Is your Bookkeeper reconciling the bank account or is he/she able to sign checks?
If so, this is a big NO! One of the major tenets of Internal Control is Segregation of Duties.
That is to say, you don't want one person to have physical custody of the asset (bank checks) and also record keeping responsibilty for that assset (bank checks). If there is no Segregation of Duties with regard to checks, it would be very easy for the Bookkeeper to alter checks, hide the forgery in the accounting records and steal money from you.
4. Have you set up Users on your Accounting software?
If you are using QuickBooks, I would highly recommend that Users be set up on QuickBooks.
This accomplishes two things:
You can identify who is making entries on QuickBooks.
You restrict employees to be only able to access certain parts
of the system, thus making it harder to commit fraud.
The last thing that you want is for everyone to have Admin permissions, because that means everyone can have access to the entire QuickBooks software and you can't identify who has done what.
5. Do you review the QuickBooks Audit Log and Deleted Transactions Report?
If you set up Users, you can use these reports to see who has made entries on the system.
In general, you don't ever want to delete transactions, because of fraud concerns. If a transaction is
deleted then you lose the information about that transaction. A much better option is to Void entries. I would be very suspicious of someone who is deleting transactions.
6. Do you require that employees take mandatory vacations?
Most frauds require that the Fraudster not take a vacation because he/she needs to be present to keep the fraud going. However, in order for this control to be effective, employees must be cross trained on other jobs. Otherwise, if the Fraudster's work just piles up until he/she gets back from vacation, then the mandatory vaction control will not be effective.
I personally know of a situation where an employee was caught because he had to go on vacation.
In his absence, one of his fellow employees had to do his job. That employee saw some things that seemed kind of strange. Thus she reported it to Internal Audit. After investigation, it was determined that he had stolen $50,000. Thus he was tripped up because he had to go on vacation.
7. Do you have a Procedures Manaual?
If not, you should. If a key employee leaves all of a sudden, what would you do? Is their job documented so that someone else could step in? How would the replacement be trained?
The last thing you want is to be totally dependent on one employee because no one else knows how to do their job.
As your company grows, it becomes necessary for the company to become more formalized to protect the company. Having strong Internal Control procedures can help protect your company.
Friday, July 13, 2012
Saturday, July 7, 2012
Questions That Your Accountant Should Be Asking You - Cash Flow
It has been said that Profit is an opinion, but cash (or lack thereof) is cold hard reality. Most companies go out of business because they run out of cash. Therefore, your Accountant should be asking you the following questions:
1. Do you have any Customers that have invoices that are more than 90 days past due?
If you do, you are putting extra stress on your company. The longer that an invoice remains unpaid, the less likely you will be able to collect it. The problem could be that your credit policy is too easy and that you are extending credit to companies that ultimately will not be able to pay you back. Perhaps, you are not being aggressive enough in trying to collect from people that owe you. In any event, your company simply cannot afford to have customers that don't pay.
2. Do you have any Vendors where you are 90 days past due?
If so, you are putting your company at risk. The best case would be that your suppliers will start refusing to extend credit to you. The worst case would be that your creditors might gang up on you and try to force you into Bankruptcy. In all probability, this problem is related to your inability to collect on your invoices.
3. Do you do Cash Flow projections?
Most cash problems do not happen overnight. By projecting your sources and uses of cash, you can anticipate problems and thus be able to solve or avoid cash flow problems that you can see coming down the road.
4. Do you use Budgets?
By taking time to plan expected cash outflows, you can avoid many unnecessary expenditures.
Budgets also make it easier to find possible Fraud when expenses are significantly higher than what was expected.
Your Accountant should be able to help you with these questions, so don't be afraid to ask.
Your company's bottom line will thank you.
1. Do you have any Customers that have invoices that are more than 90 days past due?
If you do, you are putting extra stress on your company. The longer that an invoice remains unpaid, the less likely you will be able to collect it. The problem could be that your credit policy is too easy and that you are extending credit to companies that ultimately will not be able to pay you back. Perhaps, you are not being aggressive enough in trying to collect from people that owe you. In any event, your company simply cannot afford to have customers that don't pay.
2. Do you have any Vendors where you are 90 days past due?
If so, you are putting your company at risk. The best case would be that your suppliers will start refusing to extend credit to you. The worst case would be that your creditors might gang up on you and try to force you into Bankruptcy. In all probability, this problem is related to your inability to collect on your invoices.
3. Do you do Cash Flow projections?
Most cash problems do not happen overnight. By projecting your sources and uses of cash, you can anticipate problems and thus be able to solve or avoid cash flow problems that you can see coming down the road.
4. Do you use Budgets?
By taking time to plan expected cash outflows, you can avoid many unnecessary expenditures.
Budgets also make it easier to find possible Fraud when expenses are significantly higher than what was expected.
Your Accountant should be able to help you with these questions, so don't be afraid to ask.
Your company's bottom line will thank you.
Wednesday, July 4, 2012
Questions That Your Accountant Should Be Asking You - Accounting System
Small businesses rely on their Accountants to do their taxes and sometimes their bookkeeping. However, if that is all Accountants are doing for their clients, then I believe that the Accountants are doing the client a disservice.
In a series of blog posts, I will be listing out questions that I believe Accountants should be asking their clients in order for the client to be able to anticipate threats to and opportunities for their business.
In this blog, I will be asking the following questions about the Accounting Software:
1. Is your Accounting Data backed up?
When you stop and think about it, if you were to lose your Accounting data, you would have a very difficult time remaining in business. After all, off the top of your head, would you know who owes you money and how much? Would you know which vendors you owe money to? Would you know how much money you owe your employees and how much taxes you owe?
Thus, I think you can see how critical your Accounting data is to your business. After all, you can always reinstall your Accounting software, but if you lose your data, you could be out of business.
2. Is your Accounting Data backed up Offline?
Some clients tell me that they back up their data to a jump drive or to an external hard drive or Server that is in their office, so they think that they are safe.
However, jump drives can get lost, stolen or simply fail to work. On site Servers can be damaged by fires, floods, or earthquakes. If you have a break in, Servers can be stolen.
The reality is that if you don't have your data backed up to an online Server, you truly are not safe and your business can easily be put at risk.
Small businesses rely on their Accountants to do their taxes and sometimes their bookkeeping. However, if that is all Accountants are doing for their clients, then I believe that the Accountants are doing the client a disservice.
In a series of blog posts, I will be listing out questions that I believe Accountants should be asking their clients in order for the client to be able to anticipate threats to and opportunities for their business.
In this blog, I will be asking the following questions about the Accounting Software:
1. Is your Accounting Data backed up?
When you stop and think about it, if you were to lose your Accounting data, you would have a very difficult time remaining in business. After all, off the top of your head, would you know who owes you money and how much? Would you know which vendors you owe money to? Would you know how much money you owe your employees and how much taxes you owe?
Thus, I think you can see how critical your Accounting data is to your business. After all, you can always reinstall your Accounting software, but if you lose your data, you could be out of business.
2. Is your Accounting Data backed up Offline?
Some clients tell me that they back up their data to a jump drive or to an external hard drive or Server that is in their office, so they think that they are safe.
However, jump drives can get lost, stolen or simply fail to work. On site Servers can be damaged by fires, floods, or earthquakes. If you have a break in, Servers can be stolen.
The reality is that if you don't have your data backed up to an online Server, you truly are not safe and your business can easily be put at risk.
I recommend online backups such as the one that is integrated with QuickBooks. Most business can only pay $4.95 for that QB Online Backup. You can also use services such as Carbonite or Mozy for online backup.
To be really safe, you can backup to both a jump drive and online Server.
3. Do you have sensitive data such as Social Security numbers or credit card numbers stored in your Accounting software?
If so, you need to be really careful. If someone were to hack or steal that information, you could easily be put out of business. Can you say Identity Theft?
I tell my clients that as much as possible, you should try to keep that information off you computer.
This is especially true for credit card information. For example, I use Intuit Merchant Services so that when I send a bill to client, they can go online and pay with a credit card. The information is stored on Intuit's computers, not mine.
If you store credit card information on your computer, you need to be aware of PCI compliance.
PCI compliance is not my area of expertise, but needless to say, there are severe penalties for not being in compliance.
For more information, please go to the following link:
http://www.smallbusinesscomputing.com/buyersguide/a-small-business-guide-to-pci-compliance.html
As your trusted business advisor, your Accountant should be making you aware of these kind of Accounting system issues. What you don't know can easily put you out of business.
In a series of blog posts, I will be listing out questions that I believe Accountants should be asking their clients in order for the client to be able to anticipate threats to and opportunities for their business.
In this blog, I will be asking the following questions about the Accounting Software:
1. Is your Accounting Data backed up?
When you stop and think about it, if you were to lose your Accounting data, you would have a very difficult time remaining in business. After all, off the top of your head, would you know who owes you money and how much? Would you know which vendors you owe money to? Would you know how much money you owe your employees and how much taxes you owe?
Thus, I think you can see how critical your Accounting data is to your business. After all, you can always reinstall your Accounting software, but if you lose your data, you could be out of business.
2. Is your Accounting Data backed up Offline?
Some clients tell me that they back up their data to a jump drive or to an external hard drive or Server that is in their office, so they think that they are safe.
However, jump drives can get lost, stolen or simply fail to work. On site Servers can be damaged by fires, floods, or earthquakes. If you have a break in, Servers can be stolen.
The reality is that if you don't have your data backed up to an online Server, you truly are not safe and your business can easily be put at risk.
Small businesses rely on their Accountants to do their taxes and sometimes their bookkeeping. However, if that is all Accountants are doing for their clients, then I believe that the Accountants are doing the client a disservice.
In a series of blog posts, I will be listing out questions that I believe Accountants should be asking their clients in order for the client to be able to anticipate threats to and opportunities for their business.
In this blog, I will be asking the following questions about the Accounting Software:
1. Is your Accounting Data backed up?
When you stop and think about it, if you were to lose your Accounting data, you would have a very difficult time remaining in business. After all, off the top of your head, would you know who owes you money and how much? Would you know which vendors you owe money to? Would you know how much money you owe your employees and how much taxes you owe?
Thus, I think you can see how critical your Accounting data is to your business. After all, you can always reinstall your Accounting software, but if you lose your data, you could be out of business.
2. Is your Accounting Data backed up Offline?
Some clients tell me that they back up their data to a jump drive or to an external hard drive or Server that is in their office, so they think that they are safe.
However, jump drives can get lost, stolen or simply fail to work. On site Servers can be damaged by fires, floods, or earthquakes. If you have a break in, Servers can be stolen.
The reality is that if you don't have your data backed up to an online Server, you truly are not safe and your business can easily be put at risk.
I recommend online backups such as the one that is integrated with QuickBooks. Most business can only pay $4.95 for that QB Online Backup. You can also use services such as Carbonite or Mozy for online backup.
To be really safe, you can backup to both a jump drive and online Server.
3. Do you have sensitive data such as Social Security numbers or credit card numbers stored in your Accounting software?
If so, you need to be really careful. If someone were to hack or steal that information, you could easily be put out of business. Can you say Identity Theft?
I tell my clients that as much as possible, you should try to keep that information off you computer.
This is especially true for credit card information. For example, I use Intuit Merchant Services so that when I send a bill to client, they can go online and pay with a credit card. The information is stored on Intuit's computers, not mine.
If you store credit card information on your computer, you need to be aware of PCI compliance.
PCI compliance is not my area of expertise, but needless to say, there are severe penalties for not being in compliance.
For more information, please go to the following link:
http://www.smallbusinesscomputing.com/buyersguide/a-small-business-guide-to-pci-compliance.html
As your trusted business advisor, your Accountant should be making you aware of these kind of Accounting system issues. What you don't know can easily put you out of business.
Thursday, February 24, 2011
Information About Traditional IRAs from The National Association of Tax Professionals
What is an IRA?
An individual retirement account (IRA) is a trust
created in the United States for the exclusive
benefit of you or your beneficiary. Pending certain
guidelines, it allows you to defer up to $5,000 of
income from current taxation (a married couple
can defer a total of $10,000). If you are age 50 or
over, you may contribute an additional $1,000.
Who Can Contribute to an IRA?
You can contribute to an IRA if you have earned
income and have not reached age 70½ by the end
of the tax year. Earned income includes wages,
salaries, bonuses, tips, commissions, alimony, and
other amounts received for performing personal
services, including those performed by a selfemployed
individual.
How Much Can Be Contributed
to an IRA?
You can contribute the lesser of your earned
income or $5,000 for the year. Contributions to a
Roth IRA are combined with IRA contributions
when determining these limits.
Married taxpayers filing a joint return can
contribute up to $5,000 each to an IRA if:
• Either spouse has earned income; and
• Together they have at least $10,000 of earned
income.
If you are age 50 or over, an additional
contribution of up to $1,000 is allowed.
Maximum deductible contributions are based on
modified adjusted gross income (MAGI). For
most taxpayers, MAGI is the same as adjusted
gross income. Contributions that exceed the
maximum amount allowed are subject to
an excess contribution penalty of 6%.
Excess contributions withdrawn from the IRA
before the tax filing due date (plus extensions)
are not subject to the 6% tax, provided that no
deduction is taken for the amount withdrawn.
Income earned on the amount withdrawn,
however, is taxable and the 10% penalty for early
withdrawal may apply to this amount.
What Contributions Are Deductible?
Contributions to an IRA are fully deductible,
regardless of income level, if neither you nor your
spouse is an active participant in an employer
retirement plan. Generally, if Box 13, “Retirement
Plan” is checked on your W-2, you are an active
participant.
If you are not married and are an active participant
in an employer plan, no amount of your IRA
contribution is deductible if your 2010 MAGI
exceeds $66,000. Partial deductions are allowed,
if your MAGI exceeds $56,000 but is less than
$66,000. These limits are scheduled to increase
with inflation in future years.
If you are married and not covered by an employer
plan, but your spouse is, you can take a full IRA
deduction if your joint MAGI is less than $167,000.
Joint MAGI between $167,000 and $177,000
qualifies for a partial deduction.
If you are married and both you and your spouse
are covered by an employer plan, no amount
of your contribution is deductible if your joint
MAGI exceeds $109,000 ($10,000 if married filing
separate). You are allowed a partial deduction if
the joint MAGI is more than $89,000 but less
than $109,000.
Nondeductible IRA contributions are reported
on IRS Form 8606. While contributions are made
with after-tax dollars, earnings accumulate taxfree
until distributed. If Form 8606 is not filed,
the contributions are considered deductible
contributions and will be included in income
when they are distributed.
Time Deadline for Establishing an IRA
and Contributing
IRAs must be established and funded by the tax
return filing deadline (not including extensions) for
the year in which the plan is to become effective.
Generally, this deadline is April 15.
When Can IRA Distributions Be
Taken?
You can take IRA distributions at any time, but
there is a 10% penalty on the amount distributed,
in addition to regular tax, if the distribution is made
before you reach age 59½. However, exceptions
may apply.
The exceptions to paying the 10% early-withdrawl
penalty are:
• The distribution is a series of substantially equal
payments based on your life expectancy (or
your life and the life of your beneficiary). These
payments must continue for at least five years
or until you reach age 59½, whichever is later.
• The IRA account owner dies or becomes
disabled.
• The distribution is a return of nondeductible
contributions.
• You roll the distribution into another IRA
within 60 days.
• You use the distribution for medical expenses
in excess of 7.5% of your MAGI, regardless of
whether you itemize.
• You are a first-time homebuyer or pay higher
education expenses.
• You use the distribution to pay health
insurance premiums when you are unemployed
for twelve weeks or more.
• Distributions due to an IRS levy.
• Distributions made to reservists or National
Guard members during active duty if called
to active duty for a period exceeding 179 days
after September 11, 2001.
When Must IRA Distributions Be
Taken?
You must start taking distributions by April 1 of
the year following the year you reach age 70½,
or there is a 50% penalty on the amount not
distributed as required.
How Are IRA Proceeds Taxed?
Deductible amounts contributed to an IRA will be
fully taxable upon distribution. For contributions
of nondeductible amounts, only the earnings
allocated to the distribution will be taxed. There are
special rules for determining the taxable amount
when both deductible and nondeductible amounts
have been contributed to an IRA.
What About the Self-Employed?
Self-employed individuals can contribute to an IRA.
Earned income for the self-employed is the net
amount obtained from the business. This amount
does not include income deferred into retirement
plans or one-half of the self-employment tax.
For business income to count as earned income,
personal services must have been provided to
the business. If a business has a loss, but there
are wages from employment, the loss from
the business does not reduce the wages for IRA
contribution purposes.
This brochure contains general tax information for taxpayers.
As each tax situation may be different, do not rely upon this
information as your sole source of authority. Please seek
professional advice for all tax situations.
#842 – © Copyright May 2010
National Association of Tax Professionals
PO Box 8002
Appleton, WI 54912-8002
www.natptax.com
An individual retirement account (IRA) is a trust
created in the United States for the exclusive
benefit of you or your beneficiary. Pending certain
guidelines, it allows you to defer up to $5,000 of
income from current taxation (a married couple
can defer a total of $10,000). If you are age 50 or
over, you may contribute an additional $1,000.
Who Can Contribute to an IRA?
You can contribute to an IRA if you have earned
income and have not reached age 70½ by the end
of the tax year. Earned income includes wages,
salaries, bonuses, tips, commissions, alimony, and
other amounts received for performing personal
services, including those performed by a selfemployed
individual.
How Much Can Be Contributed
to an IRA?
You can contribute the lesser of your earned
income or $5,000 for the year. Contributions to a
Roth IRA are combined with IRA contributions
when determining these limits.
Married taxpayers filing a joint return can
contribute up to $5,000 each to an IRA if:
• Either spouse has earned income; and
• Together they have at least $10,000 of earned
income.
If you are age 50 or over, an additional
contribution of up to $1,000 is allowed.
Maximum deductible contributions are based on
modified adjusted gross income (MAGI). For
most taxpayers, MAGI is the same as adjusted
gross income. Contributions that exceed the
maximum amount allowed are subject to
an excess contribution penalty of 6%.
Excess contributions withdrawn from the IRA
before the tax filing due date (plus extensions)
are not subject to the 6% tax, provided that no
deduction is taken for the amount withdrawn.
Income earned on the amount withdrawn,
however, is taxable and the 10% penalty for early
withdrawal may apply to this amount.
What Contributions Are Deductible?
Contributions to an IRA are fully deductible,
regardless of income level, if neither you nor your
spouse is an active participant in an employer
retirement plan. Generally, if Box 13, “Retirement
Plan” is checked on your W-2, you are an active
participant.
If you are not married and are an active participant
in an employer plan, no amount of your IRA
contribution is deductible if your 2010 MAGI
exceeds $66,000. Partial deductions are allowed,
if your MAGI exceeds $56,000 but is less than
$66,000. These limits are scheduled to increase
with inflation in future years.
If you are married and not covered by an employer
plan, but your spouse is, you can take a full IRA
deduction if your joint MAGI is less than $167,000.
Joint MAGI between $167,000 and $177,000
qualifies for a partial deduction.
If you are married and both you and your spouse
are covered by an employer plan, no amount
of your contribution is deductible if your joint
MAGI exceeds $109,000 ($10,000 if married filing
separate). You are allowed a partial deduction if
the joint MAGI is more than $89,000 but less
than $109,000.
Nondeductible IRA contributions are reported
on IRS Form 8606. While contributions are made
with after-tax dollars, earnings accumulate taxfree
until distributed. If Form 8606 is not filed,
the contributions are considered deductible
contributions and will be included in income
when they are distributed.
Time Deadline for Establishing an IRA
and Contributing
IRAs must be established and funded by the tax
return filing deadline (not including extensions) for
the year in which the plan is to become effective.
Generally, this deadline is April 15.
When Can IRA Distributions Be
Taken?
You can take IRA distributions at any time, but
there is a 10% penalty on the amount distributed,
in addition to regular tax, if the distribution is made
before you reach age 59½. However, exceptions
may apply.
The exceptions to paying the 10% early-withdrawl
penalty are:
• The distribution is a series of substantially equal
payments based on your life expectancy (or
your life and the life of your beneficiary). These
payments must continue for at least five years
or until you reach age 59½, whichever is later.
• The IRA account owner dies or becomes
disabled.
• The distribution is a return of nondeductible
contributions.
• You roll the distribution into another IRA
within 60 days.
• You use the distribution for medical expenses
in excess of 7.5% of your MAGI, regardless of
whether you itemize.
• You are a first-time homebuyer or pay higher
education expenses.
• You use the distribution to pay health
insurance premiums when you are unemployed
for twelve weeks or more.
• Distributions due to an IRS levy.
• Distributions made to reservists or National
Guard members during active duty if called
to active duty for a period exceeding 179 days
after September 11, 2001.
When Must IRA Distributions Be
Taken?
You must start taking distributions by April 1 of
the year following the year you reach age 70½,
or there is a 50% penalty on the amount not
distributed as required.
How Are IRA Proceeds Taxed?
Deductible amounts contributed to an IRA will be
fully taxable upon distribution. For contributions
of nondeductible amounts, only the earnings
allocated to the distribution will be taxed. There are
special rules for determining the taxable amount
when both deductible and nondeductible amounts
have been contributed to an IRA.
What About the Self-Employed?
Self-employed individuals can contribute to an IRA.
Earned income for the self-employed is the net
amount obtained from the business. This amount
does not include income deferred into retirement
plans or one-half of the self-employment tax.
For business income to count as earned income,
personal services must have been provided to
the business. If a business has a loss, but there
are wages from employment, the loss from
the business does not reduce the wages for IRA
contribution purposes.
This brochure contains general tax information for taxpayers.
As each tax situation may be different, do not rely upon this
information as your sole source of authority. Please seek
professional advice for all tax situations.
#842 – © Copyright May 2010
National Association of Tax Professionals
PO Box 8002
Appleton, WI 54912-8002
www.natptax.com
A Very Important QB Report That Is Neglected
Investing Activities show how much is being spent on Investments and Fixed Assets. The reason that Computer & Office Equipment is negative is because cash is being spent on Fixed Assets.
Financing Activities shows where the money that is being invested is coming from. In this case, it is a negative $123,000. That is because the owner is withdrawing cash from the company.
Probably the most important thing to look for is whether or not Net Cash provided by Operating Activities is positive. If it is negative and stays negative over more than one period, it means that your company is in trouble and could be running out of cash. Unless you have access to an unlimited supply of cash, you simply cannot stay in business if you a running negative on cash flow from Operations on an ongoing basis.
Sunday, February 20, 2011
Troubleshooting Clients’ Cash Basis Accounts Receivable at Year-End
Hear me and fellow QuickBooks Expert, Shelly Robbins, discuss Cash Basis Accounts Receivable.
http://bit.ly/i3mK04
http://bit.ly/i3mK04
QuickBooks Newsletter February 2011
See how you can save time with Memorized Transactions at my latest QuickBooks Newsletter.
QBC_Newsletter_February_2011.pdf
QBC_Newsletter_February_2011.pdf
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