When You Need to Know...

In line with the "having to make tough choices" theme of recent events, I asked myself what key reports in QuickBooks tell you the main things one needs to know about the business.  While financial statements have their uses, sometimes what you need to know goes one level deeper.  Here are my nominees for reports that can spur direct action or will serve as a reminder that you can afford to treat yourself to some time off.

1.  Receivables Aging.  (File : Reports : A/R Aging Summary)

-           Don’t kid yourself if it turns out you’re working for free.   If this report is going in the wrong direction, take the time now to set up a collections action plan.  Build it into your billing rate for slow payers.

o   Bonus tip:  Bill at the time of sale or service, rather than a set interval.  It sets a tone and starts the payment cycle ASAP.

2.  Sales by Customer (File : Reports : Sales by Customer Summary)

-           If anything strikes you as unexpected, check it out.   Your intuition about your business is a valuable resource.  This is a quick way to make sure your vision of where you stand with your customers matches theirs.  The sooner you find out the differences the sooner they get fixed.

1.  Company Snapshot.  Set it for this month and again see if anything catches your eye as not what you expected. 

-           If this one takes too much time, consider how to break it into pieces that limit you to 15 minutes a day.  You should be conversant with the numbers around how your business is operating. 

Make sure you do other monthly tasks, especially bank reconciliation and inventory.  Even if you don’t have a problem with fraud or error, tax season will be even worse than necessary if your books are not an accurate reflection of your business.

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.

True Crime for Small Business

So here’s a true-crime example of small business fraud :

A hardware store owner purchases a new computer system.  Despite extensive training, his bookkeeper of 15 years cannot fulfill her duties on the new system.  In tears, she finally resigns.  Over the next two months, he finds that the accounts receivable are overstated by $80,000.  It turns out the bookkeeper was keeping two sets of books.  She billed customers and sometimes deposited their checks in the business account, and other times in her account.   She used different customer payments to “offset” the payments that hadn’t been given to the business.  It gets complex to keep this up, presumably the reason the new system was one item too many to keep track of.   

Let’s talk prevention and QuickBooks.  This scam is common and preventable.  Start with using the Aging Report to look at who is paying what bills.



Then compare this Aging Report against your actual bank deposits.  This is particularly easy if all your payments go to an account called Undeposited Funds.  Typically your QuickBooks preferences are set up to do this.  If that's the case,  then the program has automatically collected the information on each transaction.  As you move through the the bank reconciliation process, it’ll be comparing payments to deposits as you go.  Even though it’s fast and easy, it is important that someone other than your bookkeeper does this.  If you don’t have the staff,  use your accountant (who might also be a QuickBooks Proadvisor).  Please note the link is a shameless plug.

Seriously though, without someone else checking the books this type of scam is pretty easy to do (after all the bookkeeper is essentially doing the same set of steps required for their day job) and relatively hard to detect.  Just double checking this one part of the process when you do the reconciliation can easily pay for itself.  Small effort with big pay off.  The key is doing it consistently.   

Check Writing Protection

One of the basic tenants for protecting your business financially is segregation of duties.  In particular you are supposed to make sure different people have the following responsibilities:  (1) authorize transactions (2) record transactions (3) have custody of cash (4) report transactions.  Needless to say for many small businesses this is an impractical set up.  However, not separating these activities is also an invitation to fraud and / or error that you should recognize and try to combat. 

Using QuickBooks compounds both the threat and an opportunity in this area.  Today I’m concentrating on a time saver that makes the business particularly vulnerable.  Checks printed with the signature.  I’m not saying don’t do it.  But you need to be careful.  QuickBooks 2010 makes it easy to do across multiple checks.  The person who prints checks with your signature image in one press of a button is essentially authorizing the transaction and controlling the cash.  If they are involved in other bookeeping tasks as well it just gets more dangerous.

One easy control step is to make sure the checks that do have your signature are associated with a segregated account.  It's not bullet proof control, but it limits potential damage.  If it’s for payroll the documentation of what amounts should be involved is probably part of running the payroll.  If it’s for bill payments, make sure you get a report of who is getting paid what before you move money to that account.  Whoever can print these checks with your signature cannot be the person who verifies these amounts.    

Let me digress for one minute about how to talk about making a change to this type of set up if you weren’t doing it before.  One of the most important components of my Five Step Business Protection Plan is talking about it.  If you talk about it often with all your employees it accomplishes multiple good things all at once.  First it sets a tone that says you are watching out for fraud.  This can engage like-minded individuals to be on the lookout and discourage those whose minds might move in the wrong direction.  Secondly, no one feels singled out for suspicion.  That can be helpful if you actually have to investigate someone, as it won’t trigger alarm bells.  Just as importantly, it helps trustworthy employees feel like you see them as just that.

Fraud prevention may sometimes feel awkward and like extra work.  It’s important to remind yourself that becoming a victim of fraud feels even worse.