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.
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