As a busy business owner it is quite easy to fall into the bad habit of simply turning over your business’s accounting to someone else; because your time is best spent in the field and not in the office doing paperwork. Not only is this a bad habit, it can also become a dangerous situation.
In the course of my bookkeeping career, now over 30 years, I’ve seen many instances of employee theft – from the simple act of people taking home office supplies in the fall for their children, employees giving themselves unauthorized raises, bookkeepers embezzling money from the business, accountants “cooking the books”, and even family members “making a mess of things”.
Whether it’s theft of money, supplies, inventory, equipment, or intellectual property, nearly every small business will experience some type of employee theft or embezzlement at one time or another.
Small businesses are particularly vulnerable to theft simply because they don’t have the resources or security controls in place to stop them.
Employee theft is extremely common; unfortunately, we hear about it or read about it in the newspapers all of the time.
While it is fair to say, most people don’t steal, embezzlement does happen; so it only makes good business sense for you to consider what you can do to minimize your employees’ opportunities to steal.
Here are some simple ideas you can use to reduce your chances of becoming a victim.
Protecting Your Business from Embezzlement
Fortunately, there are easy ways to minimize the opportunity for embezzlement at your company. Here are some steps you can take to protect your business’s assets:
1. Do a background check before hiring someone to be an employee. A person with a criminal background of theft or a problematic financial past might be tempted to take resources from your business. It’s a good idea to be informed about the person you’re hiring before you hire them.
2. Keep track of your company’s checks. Purchase and use pre-numbered checks and periodically check for missing check numbers by using the QuickBooks Missing Checks report; available by going to the Reports menu -> Banking -> Missing Checks.
Have a written “voided check” procedure that requires all voided checks to be coded to an Expense Account called “Voided Checks” and use the memo field to record the reason the check was voided; for example, printer jam. Periodically generate a Quick Report for this account to see what checks have been voided and why; create a Quick Report by going to the Lists menu -> Chart of Accounts -> scroll down to the Voided Checks account, click to select it -> click the Reports button -> choose Quick Report.
Our best advice is to Never, NEVER sign a blank check, don’t leave a signature stamp laying around, and don’t insert a graphic of your signature to be printed on each and every check that your business generates.
3. Sign and verify all checks, especially payroll checks. It’s a good idea to sign all checks-even small ones-yourself. This can be a lot of work, but you can have an employee prepare the checks for your review and signature.
Not reviewing and verifying checks before you sign them is like signing your bank account over to anybody who wants the money (and that could be everybody).
The benefit of signing all your checks is that your signature will be a requirement for money to leave the business. No cash will be deducted from the business bank account without your knowing about it.
For payroll checks, review the hours worked, pay rates, taxes deducted, and who the check is made out to. You should always know who works for you and how much they get paid.
If you’ll be on vacation for, say, a couple of weeks, the business will probably need to pay some bills while you’re away. You can deal with this in a couple of ways.
- You can decide to trust an employee enough to leave behind a signed check or two; the employee can then use these signed checks to pay for things such as an unexpected C.O.D. shipment.
- You can decide to simply require vendors to wait.
- Pay upcoming bills before your leave.
If you leave signed checks, be sure to leave specific instructions as to what these checks should be used for, and review the checks when they come back from the bank to be sure that your instructions were followed.
4. Make bank deposits nightly. As the business owner, you should make the nightly bank deposits. This is especially true for cash because it is so tempting and easy to steal. Your funds are much safer in the bank than in your desk drawer or the cash register.
5. Understand your books. Embezzlement is easy to miss and difficult to prove if your bookkeeping is sloppy or unsupervised. You need to be educated in how to review financial statements and know what to look for. Your accountant can show you how to do this, or you can take an accounting or bookkeeping course.
Use and review the QuickBooks Voided/Deleted Transactions Detail Report, found by going to the Reports menu -> Accountant & Taxes -> Voided/Deleted Transactions Detail. This report will show you who voided, deleted, or changed a transaction and when it was done.
Another report that you should review periodically is the Audit Trail Report; this report is accessed from the Reports menu -> Accountant & Taxes -> Audit Trail. This report can be very overwhelming, so it is our advice that you consult your CPA or QuickBooks ProAdvisor for help on what to look for in this report.
Employee embezzlement and theft costs U.S. businesses millions of dollars each year. Small businesses are especially vulnerable because the ramifications of theft can cripple a small firm and even force it to close.
6. Reconcile the bank and credit card statements yourself. Make it your company policy that you are the one who is responsible for reconciling the monthly bank and credit card accounts.
This way, you can make sure that no one is forging your signature and writing a check or two for non-business reasons.
This might seem unlikely, but if your business writes a hundred checks a month totaling tens or hundreds of thousands of dollars, would you really notice an extra check or two if the amounts were “only” a few hundred dollars?
7. Separate Mailroom Duty from Bank Deposit Duty. One of the most common ways to embezzle money from an employer is called lapping. To lap, an embezzler skims a little bit of the cash that comes in each month and then adjusts the books to hide the skimming.
As long as the person skimming the cash also maintains the checkbook, it’s easy for the theft to go unnoticed. The embezzler simply ignores or hides the fact that, for example, the $500 Customer A owes you has been paid.
You can minimize the opportunities for lapping if you have one employee open the mail and make notes on an Accounts Receivable report of incoming cash and another employee enter the bank deposit information into the computer.
For this approach to work, you simply compare the Accounts Receivable Report of incoming cash maintained by the mailroom person with the bank deposit information shown in the computer, and you contact customers about past-due payments. This way, you can discover, for example, that Customer A actually paid the $500 owed and that the check has cleared the bank.
8. Protect Other Valuable Assets. From an embezzler’s perspective, cash is the most convenient item to steal. It’s portable, easy to store, and easy to convert to other things an embezzler might want.
Because cash is usually watched so closely, however, embezzlers often steal other items of value, such as office equipment, inventory, and supplies.
You can follow a couple of general rules to minimize losses such as these. You can keep a record of the things that your business owns and periodically compare what your records show you have with what you actually hold.
If you buy and sell inventory, for example, keep a record of what you buy and sell. Then, once a month or once a year, compare what your records show with what you have in your warehouse or storeroom.
You can also restrict access to any valuable assets that the business owns. Warehouses and storerooms should be locked. Access should be limited to people who really need what is being kept behind lock and key. If you have items of high value in a storeroom, for example, and several employees have access, it’s also a good idea to make it a rule that people go into the storeroom only in pairs. (A dishonest employee is less likely to steal if someone else is present who may see and report the theft.)
9. Require Vacations. There’s a final embezzlement prevention tool that many big businesses use and that you should probably consider: Require regular vacations of a week or two. (Banks almost always do this.)
Here’s the rationale: Some embezzlement schemes are so clever that they’re almost impossible to catch. The one typical weakness of these super-clever schemes, however, is that they usually require ongoing maintenance on the part of the embezzling employee. By making the employee take a vacation, you can see what happens if the employee’s not around.
QuickBooks automatically prefills the date field in every transaction you create (Enter Bill, Write Checks, Create Estimate, etc.) and report that you generate. You should always verify that the date specified by QuickBooks is the correct date for the particular transaction or report.
In many cases, the date that QuickBooks provides you with is not the correct date that you need. Additionally, you should verify that you are not posting transactions to a date in a period that has been “closed”. Unfortunately, QuickBooks allows users to post new transactions to a prior period if they have access to change or delete transactions recorded before the closing date.
Report Dates
Every QuickBooks report automatically specifies a default date range each time the report is created. You should always verify that the default date range is correct.
You can change the date range by:
- Selecting a different preset date range (e.g., today, this month, this fiscal quarter, this fiscal year-to-date, last fiscal year, etc.) from the “Dates” drop-down list at the top of the report.
- Entering a time period not specified by one of the preset date ranges in the “From” and “To” fields at the top of the report, by entering the dates manually or by clicking the calendar symbol to the right of the dates and then clicking the arrows on the calendar to select the applicable month and year and then clicking on the applicable day.
NOTE: You should click the “Refresh” button at the top of the report after changing the date range. *
Check Dates
QuickBooks allows users to pay bills or write checks on a particular day but not print the checks until a subsequent day. In that case, QuickBooks automatically prints the payment date specified in the “Pay Bills” window or the date specified in the “Write Checks” window as the check date.
Users can print the actual check date by selecting “Preferences” from the “Edit” menu and then selecting “Checking” from the “Preferences” scroll box. Users then should check the “Change check date when check is printed” box in the “Company Preferences” tab.
Changing Source Documents
QuickBooks allows users to correct or otherwise change transactions by changing source documents (such as bills, checks, invoices, etc.). In fact, many of the QuickBooks help screens and user guides encourage users to correct transactions simply by changing the source document. Consequently, many QuickBooks users change source documents when a more accurate method for changing a transaction should be followed.
For example, many users change Estimate or invoice amounts in QuickBooks rather than issuing credit memos to their customers. Likewise, many users change bills that have been entered in QuickBooks rather than entering vendor credits as negative bill amounts. In addition to changing amounts on source documents, QuickBooks users also may change accounts, dates, or other information after the transaction has been posted. When users alter source documents, QuickBooks retains a record of the change with the audit trail feature. Practitioners should encourage their QuickBooks clients to enter new transactions (such as credit memos) or record journal entries when applicable rather than changing source documents.
Accounts Receivable and Accounts Payable
QuickBooks requires that a “Customer:Job” be specified in journal entry postings to accounts receivable and accounts payable. Consequently, practitioners who wish to make correcting entries to accounts receivable or accounts payable without correcting individual customer or vendor accounts often specify the “Customer:Job” as “dummy” or “adjusting.” While that practice may be a quick and efficient way to adjust the accounts receivable or accounts payable balance, the authors caution that the adjustment method will result in incorrect individual customers and vendors accounts. The practitioner should advise his or her clients that the individual customer and vendor accounts will be incorrect.
*Users can choose a personal preference that automatically refreshes reports. To turn on that preference, select “Preferences” from the “Edit” menu. Select the “My Preferences” tab under “Reports & Graphs” and then select “Refresh automatically.”
A reader asked the following question:
Do you know of a good method for indicating or tracking that a vendor bill is approved for payment?
Answer:
Technically, the bill should be approved before it is input into QuickBooks; and generally indicating on the front or face of the document/purchase order/voucher/vendor invoice or whatever you happen to call it, is usually the relied upon method.
1. Purchasing inexpensive “custom printed stamps” is probably one of the easiest ways in which to start the process.
When ordering custom made stamps you can include lines with places for accounting to approve the document signifying that the invoice had all pertinent documentation attached, that the dollar amounts matched, and the date that the invoice was received. Be sure that there is another line or place for the owner to sign off.
2. Another valuable stamp is one that is made for costs that are to be passed along to the customer.
If a vendor invoice has costs that have to be passed along to the customer, purchase a stamp that says “Invoiced Customer ____________”, you can then stamp the vendor bill and insert the customer name on the actual invoice and mark the Invoice as “To Be Billed” in QuickBooks.
3. If all of the above sounds like too much work and “paper shuffling” and you fear that some vendor invoices will become lost in the process, then try this simple method.
As vendor invoices are received, enter them into QuickBooks using the Enter Bill function. Use the memo field to indicated Purchase Order Numbers, discrepancies, and other important information; such as if it is billable to the customer. Use the “To Be Billed” function as necessary.
Generate an “Unpaid Bills Detail Report” (QuickBooks Reports Menu -> Vendors & Payables -> Unpaid Bills Detail) that has been modified to include the “memo” field. Provide this report, along with the current bank balance, and give it to the business owner. He/she will then circle bills that they wish to have paid and return the report to you. You generate the checks; give them the checks to be signed along with the report; now indicating the bank balance after you have generated the checks.
If you think that job costing is all it takes to have a good construction accounting system – think again!
You need a firm handle on your costs and QuickBooks when properly setup and used does a very good job, however, you also need to be able to control those costs.
In almost every other industry, the Accounts Payable function is strictly a clerical function, found only in the accounting department.
Most construction managers know that subcontract and purchase order control can only be achieved with a good accounts payable system in place. As much as 75% of your Accounting Department’s time is spent on the Accounts Payable process. Receiving and paying invoices is a constant, on-going process. Therefore, it had better be good.
The problems of having to handle so many accounts with so many different people over extended periods of time can all be solved by how well you utilize the functionality found in the various pieces of the QuickBooks Vendor Center.
- Using the “Enter Bills” in conjunction with the “Pay Bills” functions reduces costs by preventing double payments.
- By setting up and using “Terms” you can improve profit by watching for available discounts.
- By using the Purchase Order function for tracking subcontracts and materials purchases you can avoid over payments.
- You can even setup and utilize a system to track the expiration dates of subcontractor Workers Comp and General Liability policies.
- It can even help you when you talk to your bonding company.
When you utilize the Enter Bills function and setup up Terms, QuickBooks then recognizes that you do not pay all your bills the same way.
- There are vendor invoices that need to be paid by some due date in order to take advantage of discounts.
- Other bills are paid when you are paid for a particular job.
Naturally tracking the discounts and retainages for each can be a time consuming job.
Whom do you owe money to? How much do you owe them? When do you have to pay them? These basic questions have to be answered every day. The QuickBooks A/P Aging Detail and Unpaid Bills Detail Reports are ready with the answers. Since the Enter Bills form asks for a due date, you can input any date, and use it for cash forecasting, or for a final checklist before you run checks.
Features and Functions of a good Accounts Payable system when using QuickBooks:
- Using the “Enter Bills” function allows for immediate posting of invoices
- Using the “Pay Bills” function allows you to take advantage of discounts and provides immediate posting of payments.
- Maintains vendor and invoice numbers to guard against double payments.
- Automatically calculates discounts.
- Track Retainage withheld from subcontractor payments.
- Track Workers Compensation and General Liability Insurance expiration dates for subcontractors.
- Print Joint Checks, 1099’s, and Lien Releases.
- Set up your own “cost” codes to track expenses and/or cost of goods sold expenditures.
- Assign vendor costs to specific cost codes and jobs.
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