Maintain Good Accounting Controls in QuickBooks 2018 - dummies

Maintain Good Accounting Controls in QuickBooks 2018

By Stephen L. Nelson

QuickBooks 2018 offers control techniques that a business owner or business manager can use to minimize unintentional errors and minimize the opportunity for theft that occur when multiple users have access. Here are some great ideas:

  • Regularly compare physical inventory counts with inventory accounting records. Inventory shrinks, unfortunately. People — sometimes employees, but often pseudocustomers, such as shoplifters — steal inventory. Therefore, one thing you need to do, both to minimize your inventory losses and to maintain accurate accounting records, is regularly compare physical counts of your inventory with what your accounting records show. A small convenience store, for example, may want to compare tobacco inventory on a daily basis, beer and wine inventory on a weekly basis, and all other grocery inventory items on a monthly or annual basis. This approach to frequently counting the most valuable and easiest-to-steal items accomplishes two things:
    • Inventory shrinkage is quickly identified.
    • The business owner can minimize inventory shrinkage by identifying the type of inventory that is most often stolen or even when inventory is most often stolen.
  • Reconcile bank accounts. One thing that business owners should do, in my opinion, is reconcile their own bank accounts. Often, employee theft by accounting personnel occurs as employees figure out how to write checks on the company’s bank account that the owner doesn’t see. One sure way to find a fictitious and fraudulent transaction is to have the owner reconcile the bank statement. If the owner reconciles the bank statement, she can compare the bank’s accounting for the account with the company’s QuickBooks accounting records. Any obvious discrepancies can be fixed, which means that the QuickBooks accounting records are more accurate. Additionally, any flaky, suspicious transactions tend to become obvious when the business owner looks closely at checks.
  • Segregate accounting from physical custody where possible. In a small business, it’s difficult to always separate the accounting for some activity from the physical custody or physical responsibility for that activity. It’s tough to segregate the inventory accounting from physical custody or access to that inventory. A store clerk, for example, may easily be able to steal cigarettes and also adjust inventory records through cash register sales for cigarettes. Nevertheless, wherever you can segregate physical custody from accounting, built-in error checking occurs. The person doing the accounting indirectly checks on the physical custodian’s caretaking of the asset. If the physical custodian is stealing cartons of cigarettes, for example, that fact shows up when the accountant compares the accounting records with the physical accounts of inventory. Similarly, someone who doesn’t have access to the cash and the bank account can’t easily steal cash, even if he has complete access to cash accounting records. You can ask your CPA for help in devising ways to segregate physical custody of assets from accounting and bookkeeping duties. And you really, really should do this. Unfortunately, employee theft is very common.
  • Train employees in the use of QuickBooks. You should train employees to use QuickBooks if you have a business of any size for two basic reasons:
    • Someone who knows how to use QuickBooks is less likely to make inadvertent errors. QuickBooks isn’t difficult to use, but it’s also not something that you can learn willy-nilly with no help. Some transactions are pretty tricky, particularly for certain businesses. So if you can, it makes good sense to provide some employee help or training, or both. Those resources let people use QuickBooks’s features more comfortably and more accurately to build financial information that lets you manage your business better.
    • Messy accounting records camouflage employee theft. Often, one thing you see when employee theft happens is really messed-up accounting records. For that reason, you can find yourself in a situation in which poorly trained employees create a messy accounting system that enables employee theft. So training means not only that you’ll have more accurate accounting records, but also that you’ll be less likely to have an environment conducive to theft or embezzlement.
  • Close your QuickBooks file. If you take a Principles of Accounting course, you’ll discover that closing means a set of bookkeeping procedures that somebody performs to zero out revenue and expense accounts so that starting in the new year, revenue and expenses can be easily calculated. In QuickBooks, closing means something different. But you still want to close the QuickBooks file to maintain the integrity of your data. Here’s how: Choose the Edit –> Preferences command, select Accounting, select the Company Preferences tab, and then click the Closing Date Set Date/Password button. When QuickBooks prompts you, specify a closing date and password. After you provide this information, QuickBooks prohibits or limits users from changing or entering transactions dated before the closing date. (Only people with the password can make changes to or enter transactions with dates earlier than the closing date.)
  • Manage your QuickBooks accounting system. I’m sorry to report that many business owners don’t view the accounting system as being anything more than a tool to produce invoices, paychecks, and information required for the annual tax return. Unfortunately, that distant relationship with the accounting system means that business owners often don’t feel much need to actively manage what happens with the accounting system.

An opinion based on more than 30 years of experience working as a CPA is that this attitude is wrong. An accounting system should be a tool that you use to better manage your business. And it can be that. But if it’s going to be a tool for better managing your business, you need to manage the system. In other words, I respectfully suggest that you take responsibility for ensuring that employees are trained to do the things that protect your accounting system (such as backing up the data file) and that you ensure that they complete appropriate accounting procedures on a monthly and annual basis (such as sending out all invoices, reconciling bank accounts, cleaning up messy transactions, and so forth).

This management responsibility does not need to be a heavy one. You can rather easily make sure that people are doing the sorts of things they are supposed to be doing by creating some simple checklists. The following table shows a sample monthly accounting to-do list.

A Sample Monthly Accounting To-Do List

Task Completed?
Data backed up and moved offsite
Bank accounts reconciled
All invoices, credit memos, statements out
Any suspense accounts cleaned up
Financial statements delivered
Exceptions reported (overdue invoices, bills, purchase orders, understocked inventory items, and so on)

This table shows a sample annual accounting to-do list. You can use these tables as starting points for constructing your own list of things that the accounting clerk or office manager must do every month or at the end of every year.

A Sample Annual Accounting To-Do List

Task Completed?
Adjust trial balance
Burn CD with year-end numbers for permanent record
Consider cleaning up data files if they’re huge
Close year when really done