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.    

The Audit Trail Report

It’s true that many of the steps associated with protecting your business are not obvious or intuitive at first.  However, some are easy and easy to remember.  One of those for QuickBooks users is the Audit Trail Report.  If there’s malfeasance or error in your books one would expect to see it in the Audit Trail Report.   That’s a pretty good assumption, though the report does have some blind spots.  First though, let’s look at what it does do.

To do this task

1.    Go to the Reports menu and click Accountant & Taxes.

2.    Click Audit Trail.

In a nutshell the Audit trail report lists any changes to an accounting transaction and what user initiated that change and when.  Each time a transaction is changed, the report will highlight the changes in bold italic type.  Each transaction heading is in bold and it details the type of transaction and which is the latest version of the transaction.  If a transaction is changed more than once, the changes are sorted by date.  Here's a sample of what you'll see...

 

If you check this report regularly you’ll get to see patterns of changes that can be used as a guide to areas for improving both employee training and tips for areas to investigate.  If your accountant reviews your QuickBooks regularly, have them take a look at the report and then give you a heads up if they see any patterns or things that should be changed.   It’s not just fraud that comes up here,  the report can show errors as well. 

One big caveat is that the audit trail monitors changes to transactions.  It does not looking at changes to lists.  So if you merge accounts or “delete” a user that information won’t show up on the report.  It’s not bullet proof, but what information it does provide is helpful. Mistakes in bookkeeping cost real money.  Putting some energy into fraud and error protection is time and money well spent.