Time to Count

While the focus of this discussion is using Quickbooks in your business, the fact is some of the fraud prevention tasks have to be done manually.  Inventory is in the bulls eye for manual fraud prevention.  Look at it this way, it’s the place where you spend the most money and make the most money.  The consequences of incorrect inventory hit the bottom line of your business and your tax return.  This is a prime area to be careful.  It’s best to do some sort of physical inventory count at least once a month – if you can’t manage that try once a quarter and see what your results are like.  The level of variation you find from Books to Count should guide your next steps. 

You’ll want to focus on two areas of Quickbooks  -- the Physical Inventory Worksheet and Adjust Quantity / Value on Hand.   For this post we’ll concentrate on the worksheet.

 

You can find this sheet as a choice on the Inventory reports submenu.  It lists your items and sub-items in alphabetical order.  There’s a blank column for you to enter the actual count as you (gasp) handwrite the quantities on the sheet.  A couple of items to watch out for in terms of planning the count: 

(1)     This sheet only displays inventory items that are active.  Make sure what you have in the warehouse matches that definition for Quickbooks or your count will be off.

(2)    You can’t change the way these items are sorted, so if your storage layout is different,  you need to plan for that.

(3)    You can eliminate the preferred vendor column before you print out the sheet.  That’s likely to be wasted space for the physical count.

Remember, this may not be fun while you are doing it, but the results are tangible and quantifiable.  You’ll know it’s worth it in the end, even if you don’t count the value of peace of mind.

New Year's Resolution: Cash Sales = Cash Compensation

Here’s a New Year’s Resolution that gets easier to stick with as you go.  Make sure you calculate sales commission based on cash received – not on Accounts Receivable.    The first step for making this resolution stick is giving yourself a list base in QuickBooks to work from.  In this case that means “create” sales reps in QuickBooks

1.    From the Lists menu, choose Customer & Vendor Profile Lists, and then choose Sales Rep List .

2.    Click the Sales Rep button and choose New.

3.    Enter the name in the Sales Rep Name field and click OK (or Next, if you're planning to add several sales reps now).

4.    If the sales rep is not already entered on your vendor, employee, or other names list, you'll be prompted to add it.

Once the reps are in QuickBooks you can track their results – in cash.

Basing sales compensation on cash paid by customers instantly improves collections of Receivables.  It also focuses your people on end results that result in profits.  In addition, it takes away many opportunities to create the impression of performance, without any actual increase in revenue. 

Make Sure You're Collecting All You've Earned

Intuit provided this true-fraud example in a recently published Security White Paper.

  “Here’s a real real-world fraud case that involved an employee who modified deposits to steal money owed the business:  This particular business provided music and art lessons to students. The employee would accept a customer payment, and then post the payment to the customer account. The employee would then enter a discount on the Receive Payments window offset to some catch-all account such as Opening Balance Equity, an account that has a significant overstated or understated balance for most companies. Cost of Goods Sold and income accounts carry large balances, too, so employees may try to bury activity in the detail of those accounts as well.”

 One way to catch this kind of fraud is to make sure you – or someone who is not responsible for bank deposits  -- is on top of Receivable collection.  To start, make sure your aging report and your general ledger balance are exactly the same.

 

 It’s also worth the time and trouble to follow up on partial collections and receivables that don’t have complete information.  It helps you get paid more promptly, ensures your receivables are in good shape should you decide to seek credit and reduces both errors and fraud.  Pretty good return on investment for your time or the use of a QuickBooks Proadvisor.  (Guess who I’m thinking of with that last suggestion.  LOL.)



Follow the Missing Checks

The 21^st century world of ATMs and instantaneous card transactions isn’t always omnipresent at a small business.  There are plenty of checks that either don’t get deposited in a timely manner (stuck in a desk drawer or a pocket of someone’s purse) or checks that aren’t cashed rapidly due to the many other distractions in the business world.  Such benign descriptions though aren't always what's really going on.  Aging checks and deposits can also be a flashing red light associated with improper bookkeeping and fraud.

The best way to manage this risk is to develop a consistent policy of reviewing outstanding checks and deposits that haven’t cleared the bank.  It’s easy enough to integrate this into how you do your bank reconciliation.   Your start with the 'Begin Reconciliation' dialogue box and then continue to the 'Bank Reconciliation' window.  If you’re comfortable manipulating the data you can speed up the process by sorting the data to match the way your bank arranges the statement.  Otherwise QuickBooks will default to sorting through the statement by date.      

In this case we’re on the lookout for aged outstanding checks or deposits.   Think of anything that’s more than a week old as worth paying attention to.  It doesn’t mean it’s a problem, it means you should put it on a list of possible duplicate transactions or errors. 

When you’ve done the first pass at the reconciliation, try viewing the Bank Reconciliation Detail report.  You’ll want to modify this by choosing the modify report button, then the Filters tab.  For the Filter for “Cleared” you want to choose No.  This will give you your list of suspects to follow up on. 

Yes this is adding another step to a process no one enjoys, but it’s really worthwhile.  It prompts you to ask questions about checks and most of the time uncover little slip ups or delays that aren’t material.  More importantly, it sets an important tone about diligence that research shows is critical to fraud prevention in companies both big and small.    

How to Breach QuickBooks Access Protection

If I were the type of person who was intrigued with tattoos I’d probably have the words "segregation of duties" on my arm surrounded by a heart.  (Trust me, there's no danger of this actually occurring, it was just a thought.)  It’s not the only component of internal control that’s important, but it’s an action you can take that immediately provides a layer of additional protection.  This protection is from both errors and abuse, so the benefit to your business is quickly larger than the effort expended.

Quickbooks provides a tool for de facto segregation as you set up a new user.

 

Creating different access points for different users is the obvious intended use of this feature.  I'd like to highlight one other important component of this selective access capability.   You can configure rights for existing transactions.  This option controls the users ability to manipulate existing transactions.  In particular this feature stops the user from changing or deleting a transaction, even if he or she created it in the first place.    This is one case though, where the fine print is really important.  Here’s the key info directly from the QuickBooks 2010 Manual.

 - Note: If you do not give a user permission to delete transactions, he or she can still delete a transaction they create as long as it was created during the same QuickBooks session.

 The emphasis is added.  So if your bookkeeper leaves QuickBooks open and just puts the computer in power save mode rather than turn it off, the session never ends.  You’ve put in the safety feature, but it’s in effect disabled. 

This is a vivid example of why it's important to consider your control environment, not just the technology.  The software protection can only take you so far.  Having policies and procedures around how financial recording and reporting is done is a key success factor for internal control.  Consistently enforcing and practicing them is another equally essential step.  The combination is a winner each and every time.  Remember, a thief only has to get lucky once.