Protect Your Company from
the Unethical Employee
Begin
with the bank reconciliation: Be
sure the individual opening, reviewing and reconciling
the bank statement
is different from those creating deposits and Accounts Payable
and Payroll checks within
QuickBooks. If the same person does both, even occasionally, then
another accounting person must review all transactions on a weekly
basis.
Consider hiring your CPA or
QuickBooks advisor to complete the bank reconciliation when you have
too few employees to adequately segregate important financing
activities. With a high speed internet connection, reconciling
an account from a remote location is easily accomplished.
In the case of a small business where there is only one “accounting”
person on staff, instruct the business owner to have the bank
return the checks with the bank statements, and have the
bank statement package delivered to the business owner's home
address. That way, owners can review the checks themselves
against the QuickBooks printed check register, and catch any
discrepancies. Keep an eye
open for unusual electronic withdrawals, and compare deposits per
bank to a deposit report within QuickBooks for the same period.
Also, the person
issuing the Accounts Payable checks should not be the person
authorized to sign them. Rather, the business owner or General
Manager should sign such checks and seal the envelopes personally.
This practice prevents a person from having a check signed, and then
taking it home and altering the payee or amount after the signature
was applied.
To
generate a deposit report that will total,
go to the
reports menu and
select custom transaction detail report, click on the 2nd tab titled
"filters", and select the filter "account". Then,
place a check next to your business checking account. Add a second
filter for transaction type and select "deposit". The
credit column on this report will never contain data so remove it
from the report.
TIP: Find
the diamond icon to the right of the word "credit" on the
report, click and hold, drag it to the diamond on the left side
of the word credit then release the mouse hold (this removes the
column).
You
will want to utilize this report every month so let’s give it a
title and memorize for future use. From the report button bar,
click on the modify report button and click on the Header/Footer tab
to change the report title. Then, click OK. Use the memorize
button on the button bar (or Edit, Memorize or CTRL + M) to save the
report for future use. Memorized reports are available under the
reports menu located at the very top of the QuickBooks window.
You may need to change the date range the next time you use this
report.
Audit Trail tracks
deletions/modifications to transactions.
In earlier versions of QuickBooks, you could turn the Audit Trial on
and off in Accounting Preferences. Well, now it is on all the time
and that’s just the way it is. The audit trail feature will keep a
record of all transactions entered, every transaction revision,
date/time of revision, and the individual’s name. Audit trail
reports are available under "accountant & taxes" menu
option within the reports menu. Filter for the user, the date, the
account, etc.
Also, don’t forget the
Voided/Deleted Transactions Report. You may also close the
books which will require a password set by the administrator to make
changes in previous periods. This is another good reason to keep the
admin password to yourself and not give it to your in-house
bookkeeper.
Limit
access to only those areas of QuickBooks necessary to do the job -
If control is an important issue, you want to ensure that no one
member of the administrative staff has the right to make certain
changes without the authority of others. Determine what areas of
the software are important for each user to access. Use
passwords to protect your data, limit access, and provide
confidentiality of information. To create passwords go to "Set
up passwords" which can be found under the Company file menu.
The admin login has complete access to the entire QuickBooks
program and sets up the security access for the rest of the staff.
Used to be that if you lost
the Admin password, the QuickBooks file became inaccessible
(and very costly to have removed by Intuit). However, newer
versions make you enter a reminder hint to reset your password in the
event you lose it. There is even a password recovery tool available
to Pro Advisors and smart techies.
I always suggest that the
person responsible for the books, create a user account for
themselves and not work in the admin account except when absolutely
necessary (backups, creating new users, setting closing dates,
rebuilding, importing, etc). There are rare cases where the login
profile becomes corrupt. If you are a user, just delete the user name
and set up a new user when logged in as admin. But if it
is the admin profile that is corrupt, you will be sending your file
of to Intuit Data Services and pulling out your check book. It is a
small price to pay to have to log in as admin every now and then to
do certain tasks compared with recovering from an admin profile
failure.
Remind staff of the importance
of keeping passwords to themselves. While users (other than the
administrator) may not change the security access levels, they may
change their own password.
Vacations - Although
it is not a QuickBooks tool, there's a great 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. I know of one business partnership that
allowed one of the partners to pay for a trip to the Philippines and
to pay off a home mortgage. When the partner was in the Philippines,
revenue went up, profits went up, and discrepancies were discovered.
When he came back, he was facing criminal charges.
Two
Things Bookkeepers Should Never Do
There
are a couple of things you should never do. If you’re not careful,
doing either of these two things can, quite literally, lead to
financial ruin.
Don’t
Borrow Payroll Tax Deposit Money
Don’t
ever borrow the payroll tax deposit money, and don’t ever help the
business owner borrow the payroll tax deposit money. The IRS takes a
very dim view of mishandling this money. If you’re the bookkeeper
and you’ve actively participated in borrowing the payroll tax
deposit money, the IRS can collect the money from you. (The IRS
assumes that this borrowing amounts to stealing and that, as an
accomplice to the theft, you may as well be the one to pay.)
If
you’ve already been doing this, my advice is that you stop
immediately. If the small business you keep the books for owes
payroll tax money it can’t repay, I suggest you confer with a tax
attorney.
Don’t
Participate in Misrepresentation – Financial
misrepresentation occurs when you (or the business owner with your
help) juggle a few of the financial figures to make the business look
a little more profitable or a little healthier. Although the practice
may seem innocent enough, it’s a serious crime. Never participate
in misrepresentation.
A
business might be tempted to juggle the figures to get a bank or a
vendor to lend money or to get an investor to contribute money. When
this happens, the bank, vendor, or investor contributes money because
of a lie. If the bank, vendor, or investor loses money or discovers
you’ve lied, both you and the business owner can end up in serious
trouble. People do go to jail for this.
If
you’ve been participating in financial misrepresentation or are
being asked to participate, I suggest that you try to find a new job
and that you talk with an attorney to see if there is some way you
can extricate yourself from the mess.
Income
tax evasion is basically just another form of financial
misrepresentation. In this case, however, it’s the IRS that’s
being lied to rather than a bank or an investor.