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.)



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. 

Making Payments Correctly

Learning to use QuickBooks to track your payments may seem a little tricky at first, but it gives you a really clear data trail that can be used to both prevent and detect fraud.   When you set up QuickBooks for automatic use of the Undeposited Funds account each time you enter a payment it is tracked in the Undeposited Funds account. 

One important side-effect of this approach to tracking your revenue is that each payment appears as a separate entry when you do your bank account reconciliation.  If you receive multiple payments your bank statement only shows the total amount deposited.  (This is where the fraud prevention can kick in.  You don't have to wonder if the deposit total matches your payments.)  When you reconcile in QuickBooks the details of each deposit you posted will appear in the Reconcile window.  (Ta-Da!  OK, maybe I'm getting a little overly enthusiastic here.  Sorry. ) 

They key is making sure you record all payments in the Enter Sales Receipts and Receive payments window.   I find the chart below a handy reminder of how to think through the process. 

If this doesn’t make sense to you or your bookkeeper, try spending some time with someone who can answer your questions.  (Yes that could be someone like me!)   Payments are the lifeblood of your business.  Making sure you don’t lose track of them is one of the most cost-effective time investments you can make.