The Receivables Exchange

It has been about a week since we began our discussion on Fraud Prevention.  Did you take time to review the first 5 tasks?  Begin implementing them?  If not, let’s take a moment to talk about why you should.  According to the 2012 Global Fraud Study by the Association of Certified Fraud Examiners, a typical organization loses 5% of its revenues to fraud each year and these fraudulent acts continue, on average, 18 months before being detected.  If you think you are immune because you are too small or have reliable long term employees think again. This same study showed that the smallest organizations suffered the largest median losses and that the longer a perpetrator has worked for an organization, the higher the losses tend to be.

On that wonderfully inspiring note we continue this week with our final 5 Fraud Prevention Tasks.

6. Log In’s and Passwords

Each employee that touches your accounting software, including you the business owner, should have a unique log in and password.  All accounting software systems have some sort of Audit Trail which will allow you to review, to some degree, the work that an individual has performed.  Try not to use generic labels for people but instead make them specific to that individual.  If you use temps or have people that perform similar tasks, take the time to create a log in for each of them. 

Additionally have them select their password rather than issuing one to them.  This will protect you, or the person setting up these employees if fraud is detected. 

QuickBooks Example: User restrictions are quite different between QuickBooks Pro/Premier and Enterprise.  In the Enterprise product you can provide select access to over 100 areas in the program. 

Company>Users>Set Up Users and to change your own password Company>Change Your Password

 

7. Set Closing Dates

A closing date is used to ensure data is not incorrectly added to a month or year that has passed.  Not all accounting systems require this but it is possible in each of them.  I would suggest this be done on a monthly basis after you have entered all the invoice and bills for the prior month and reviewed your financial reports for accuracy and consistency. 

QuickBooks Example:  QuickBooks is one of those systems where you are not required to set a closing date.  The most common argument against using it is the inability to make changes even when it is warranted and proper.  QuickBooks however does allow you to set a closing date password for two reasons.  First to bypass this restriction and allow entries when it is proper to do so.  And second, to track those changes when they do occur.

Edit>Preferences>Accounting>Set Closing Date/Password  

 

8. Audit Trail

As I mentioned above, each accounting software I am familiar with has some type of Audit Trail functionality. Traditionally this report tracks additions and changes made to transactions as well as who made those changes.  Typically, this report is quite difficult to review and lengthy if you have a lot of activity each day.  If you are not able to review it daily I would recommend you do spot checks when you can and narrow down your review to a day’s transactions.

In addition to the Audit Trail, there are a few other Audit Trail type reports that I review on a regular basis.  The first is the Closing Date Exception report which tracks changes made if the closing date is bypassed using the password I discussed above.  I also like the Void/Deleted Transactions Summary and Detail.  These reports allow you to review what has happened to a given transaction from the time it was originally created to the moment you run that report.       

QuickBooks Example: In the example below note how the first transaction (a bill) was entered, than several lines were changed and finally it was deleted, all by the same person. 

Reports>Accountant & Taxes>Audit Trail

 

9. Inventory Counts

If you track inventory this process is vital for loss prevention.  In addition, if your physical inventory matches your inventory data, reporting related to Costs and Profit will be more meaningful.  

QuickBooks Example: In addition to the standard inventory reports, I also run a Profit and Loss report customized to include a % of Income column.  I use this to ensure my Cost of Goods is in line with what I thought I should be making based on my markups. 

 

10. Create a Budget

Creating a budget can be easier than you might imagine,  especially if you have been in business for a year or more and have properly tracked income and expenses.  Compare this information to actuals in a similar way as you did with the Profit and Loss period comparison.  These comparisons should highlight any unusual and unexpected spikes in spending.

QuickBooks Example: With QuickBooks you can easily create Budgets from scratch or from prior year data.  You can create one for the overall business, by class or by customer.  In addition there are in product reports to assist in comparisons.

Company>Planning and Budgeting>Set up Budgets and for reporting Reports>Budgets and Forecasts>Budget vs. Actual

 

Bonus Tip: Sign Checks

By signing checks or processing electronic payments the report reviews listed above will take significantly less time and be more meaningful.  Your ability to pinpoint potential issues and errors quickly will increase with every passing month.  If signing physical checks is not practical you can easily maintain control over this task by utilizing online banking systems. 

QuickBooks Example: You can directly link QuickBooks’ payment processes up to most major banks.  With this set up a bookkeeper can enter bills and prep payments while you simply review and electronically submit these payments to the bank.  The bank in turn cuts your checks and sends them to your vendors.

To find out if you bank provides this direct connection go to Banking>Online Banking>Participating Financial Institutions.

 

Final Thoughts

I hope these posts have inspired you to take a few hours out of your month to review and examine your books and records.  As I mentioned in my last post you may be surprised to find that utilizing these tips can not only help prevent fraud but also provides insight into your businesses' health and profitability.

Start financing your invoices with The Receivables Exchange today!