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. 



Sales Tax Adjustments

There are two approaches you can take to correcting the sales tax related to a bad debt.  First let me emphasize that this is assuming you are not on the hook for the sales tax regardless of what money you actually collected.  This varies by jurisdiction, so you need to check first and make sure this is a legitimate change in the amount of sales tax you owe. 

Assuming that you can avoid paying sales tax for a “sale” that you didn’t get paid for (or paid in full for) there are two options that appear to be the most popular ways to manage this.   The most straightforward to me is using the Manage Sales Tax Icon and then entering the information in the dialogue box.  If you prefer to use the menu:  go to Vendor, then Sales Tax, then Adjust Sales tax.  If you pay sales tax for more than one jurisdiction you’ll have to adjust each entity separately.

Once you reach the dialogue box you'll want to select the radio button to decrease the sales tax.  You also need to select some sort of "other income"  account to take the adjustment.  Remember, in this case you are not really adding any money to your business.  You are literally just reversing a "subtraction" based on an event that didn't happen.  (Or at least it didn't transpire in the manner you had hoped.)

Once you make the adjustment, make sure you follow through on it when you make the payment.  It should calculate the adjustment prior to you actually saving the transaction.

  If for some reason you would rather do a journal entry, here’s an excerpt from the QuickBooks knowledge base: 

How to create a Journal Entry to adjust the Sales Tax in QuickBooks:

1.     From the Company menu, select Make General Journal Entries.

2.     Select the Sales Tax Payable account in the Account field drop-down menu.

3.     Enter the amount and the vendor it applies to.

4.     On the next line, enter the account you want the adjustment to be tracked in.

5.     Click OK to save the journal entry.

 Once again, make sure to mark the adjustment with a check mark when you go to make the payment.  It’s unfortunately all to easy to make the changes and then process the transaction without including the new information.  (Not that I’ve done it personally….)  LOL

Dealing with Bad Debt in QuickBooks

Unfortunately bad debt is a topic that gets a lot of attention these days among QuickBooks users.  While it's big topic with lots of details to attend to, it seems to me the best bet is to do a little bit at a time.  While it does nothing to make you more comfortable with not getting paid, at least you know you are recording the info.  If nothing else, that's a help at tax time.

So let's start with a basic case.  You have a customer that you have tried to collect from, and the facts and your instinct says this is not going to happen.  You need to write it off.  The instructions that follow allow you to take the whole thing or just a portion. 

Detailed Instructions (from the Intuit Knowledgebase):

1. Create an expense account that you will use to track the discount and name it Bad Debt:
   1. Go to Lists>Chart of Accounts and select New from the Account drop down box in lower left corner.
   2. Place Check in Expense and click Continue.
   3. Name the account (Bad Debt), and give description if needed (Will not receive funds from Customer), and click Save & Close.
2. Go up to the customer drop down and select Receive Payments.
3. Select the customer you are writing off the debt for.
4. Check the invoices that you wish to write off.
5. Click the Discount & Credits button.
6. Enter the amount you wish to write off.
7. For the Discount Account line choose the Bad Debt account you created in step 1.
8. In the Receive Payments window, save the bad debt transaction.

This is just one approach, and it does nothing to the sales tax.  We can visit that adjustment next.  Then we'll move on other approaches.  If you are new to QuickBooks I suggest experimenting with what works for you.  The thing I like about this set of tasks is it's easy to follow the logic, and it leaves a great documentation trail for taxes, further action against the customers, etc.  What I don't like is it's lots of steps.  Again -- you just have to see what works best for  you