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Attaching Receipts and Documents to the Transactions in the Accounting System

Consider:

  • the extent to which those records are organized and accessible outside of the accounting system
  • how much is at stake if a deduction is challenged
  • how easy it is to get the organization into an app like Entryless or Expensify or any one of a ton of others in which the spender snaps a photo of a receipt and sends it in for OCR and classification
  • the volume of transactions that could be material that could potentially be challenged, individually or taken as a whole
  • whether anyone is doing quality control on the data entry and needs quick access to the backup for classification
  • the likelihood of the organization to convert to a different accounting system
  • whether the organization has an annual independent audit

Our clients in the $1M-$10M range get us backup documentation for pretty much every transaction. And it comes in handy a LOT.

How to Segregate Duties with Only One Accountant

By Bob Swetz
Controller Consultant | Tier One Services, LLC
“Every business needs to be protected in order to survive and thrive.”
Part 2 of 3

What is segregation of duties and why is it important?
In Part 1 of my series on segregation of duties we explored why it is so important to have adequate segregation of duties in your organization’s accounting department. You can read about that in my article Why is Segregation of Duties Important in Your Accounting Department?
In today’s article, I provide an example of how you can achieve segregation of duties even if your accounting department has only one accountant.

How to make segregation of duties work with only one accountant
If your organization has only one accountant who does everything it may be time for the owner, manager or director to step up and pitch in to split some of the duties with the accountant or bookkeeper.

Let’s look at the bill payment function and assume that there is one accountant and an executive director as the next level of management. To start, don’t let the accountant open the mail. The director should open the mail and give the vendor bills to the accountant to enter. Once the bills are entered, the director can review them and approve which ones to print. It would be ok for the accountant to print the checks, then have the secretary match the checks up with invoices and seal the envelopes.

 

Next, the director can review which bills are ready to go out before returning them to the secretary for mailing. Ideally, borrow and train a staff member from another department to do the bank reconciliations. If your staff is too busy for an arrangement like this, consider outsourcing some of these duties to an outside accountant or bookkeeper. It’s just that important.

In Part 3 of my series on segregation of duties, How to Segregate Duties with Two or More Accountants, I will explore another example of how to make this vital control feature work for your organization.

The Fee for a Business Plan for a Startup

The price for a business plan depends on a few things:

  • whether the plan will be used to raise investment capital (higher) or to make decisions while creating the company (lower)
  • how large and how quickly the founder plans to grow the business (larger & faster = higher fee)
  • how experienced the founder is in creating & launching successful businesses (greater certainty for the client can be parlayed into a greater fee for you if you’re really good at this, adding value & not just documenting…but greater certainty for the client can also result in a downward price pressure if he is just looking for someone to document his thoughts that he’s already confident about and not looking to be influenced)
  • relates to the above point – whether this is designed to be a project documenting what’s in the founder’s head (lower) or a process in which the business design is in fact generated based on powerful, illuminating questions with a suite of the options presented (higher). This latter choice is a process in which language is treated as a generative act, not a descriptive act.
  • what the startup will be left with when the engagement is complete – something genuinely reference-able, usable, inspiring? Or a 100-page book that’s going to get stuck on a bookshelf?

Why is Segregation of Duties Important in My Accounting Department?


Part 1 of 3
By Bob Swetz
Controller Consultant | Tier One Services, LLC
“Every business needs to be protected in order to survive and thrive.”

What is segregation of duties?
Segregation of duties is the concept of splitting key duties within the same accounting function among multiple personnel. For example, printing, checks and signing checks are in the same accounting function. Ideally, these duties should be performed by separate staff members.

Why is it important?
Allowing the same staff member to perform all or most of the duties in the same function creates an opportunity for that person to cover up improprieties. Let’s take the case referred to above and say that one staff accountant enters vendor bills, writes the checks for those bills, mails them and then to top it off does the bank reconciliation. That staff member could easily write checks to themselves, cash the checks and mark them as cleared in the bank reconciliation without anyone ever knowing about it.
It’s important to remember that controls such as adequate segregation of duties are not intended to point fingers or suggest someone is doing something wrong, they are just good business practice to safeguard the organization’s assets.

I have a small accounting department, so what can I do?
Creating and maintaining adequate segregation of duties is probably the most difficult control challenge a small organization faces. Check out how to face this challenge with a one-person accounting department in Part 2 of my series, How to Segregate Duties with Only One Accountant.

Creating Financial Order in Small Nonprofit Organizations

A $100,000 organization is large enough to go under by blowing member trust and public reputation.

And it’s small enough to experience bookkeeper & Treasurer turnover…as well as difficulties in getting clear, complete, accurate, and timely financial information on an ongoing basis.

So about getting your org’s financial house in order, here is the quintessential problem:
* The stakes are high enough that the org *cannot* afford drama and waste in finance.
* But the org is too small to afford a high-end expert doing year-round bookkeeping AND board reporting AND internal controls (helping to protect organizational assets)
* So your org isn’t alone, a ton of $100K orgs rely on a volunteer Treasurer or a low-paid bookkeeper or even an intern. Result: Turnover, mess, or both. $100K is too large for a volunteer.

The solution:

[1] First, you get the books fixed by an expert. A one-time project. If you don’t do this, old incorrect balances will roll forward forever and haunt you (there should be no drama in accounting, remember?)

[2] Second, have the expert set up systems for automation of correct accounting and reporting. In accounting, never pay a human being to do what a computer can do. Let the computer run this thing on automatic.

Reserve the human beings for what we do best:
Exercising judgment, innovating, and creating connection with other living beings.

[3] Third, contract with an expert *just* for those functions. To exercise judgment (quality control), innovate by automating and streamlining processes, and to create connection with other living beings (preparing board-friendly reports, setting up financial information flows between key people), and to defend the organization’s assets and reputation (“internal controls” – jargon alert!).

Don’t have a CPA write checks and do the books; never have the same person write checks as doing the books. But there are ways to both automate/streamline payments and making the payments more secure than paper checks anyway. You handle the payments, or your Treasurer, and your expert makes it easy. Have the CPA or other qualified person monitor the quality of the books and prepare reports so YOUR board understands them and can make decisions based on them.

To create a success map, contact one of our team members! Start with (844) 844-3766.

How to Consolidate Financial Statements from Multiple QuickBooks Files

 

Two ways to consolidate are:

EXCEL TRIAL BALANCES

[1] Export all trial balances to Excel, position them on the same tab but each below the previous one, tag add a column to tag each account with the entity name, combine the DR and CR into one DR (CR) column.
[2] Create your financial statements with your desired accounts and headings
[3] On your tab with the trial balances, create a column called Balance Sheet and assign a B/S account from your B/S page by linking to it…for all line items. Add another column for Income Statement Accounts.
Be sure to skip all intercompany accounts.
[4] On your financials, use the SUMIF function to pull from the columns on the T/B tab using your mapping.

Pros: You can easy-to-update, professional-looking consolidated financials.
Con: It takes a while to set up the first time.

 

QUICKBOOKS ENTERPRISE

[1] Make sure the Charts of Accounts are identical across all 3 entities for any accounts that you wish to consolidate. Account number, spelling, parent/sub status.
[2] Also make sure that any intercompany accounts are all on the same line, i.e. if you have an asset in one and a liability in the other, change one of them to an asset before consolidating.
[3] Use the tool in the Reports menu to consolidate.

Pro: Doesn’t take a lot of time.
Cons: You have to set up those intercompany accounts each time so they get zeroed out, and you end up with consolidated financials that are in Excel and are very cheesy-looking.

Cash Crunch! Nonprofit Edition

 

The best paths out of a cash crunch depend on the cause of the problem. Some examples are below; I hope one or more is helpful.

We’re going to skip the obvious “Get more grants! Do more fundraising!”

Cause: Solution

Embezzlement: Plug the leak, make them give it back, get a line of credit if necessary to see you through until you do.

Unreimbursed grant expenses: Speed up your processes so you can invoice faster. Engage in faster communications with grantors so they don’t forget about you. Set up electronic inbound payments for the grant funds.

High monthly burn not covered by grants: Take a look at any expenses that aren’t providing the organization with value and cut them. Start with the largest ones, not your deluxe paper clips.

Typical seasonal flux: Consider a line of credit. This financing tool is what a lot of seasonal organizations use to get them through the predictable, seasonal tough times if they haven’t saved up from the abundant times. And next season when the organization has plenty of cash, squirrel more of it into a savings account and then you’ll be your OWN line of credit!

Disallowed grant expenses: Use technology to collect backup documentation so you can submit all of those documents to grantors. For example, use Expensify or Entryless so authorized employees can snap a photo of their receipts or scan them, and send them ultimately to the accounting system. And review grants/authorizations with everyone empowered to spend so no one spends on something not covered by a grant.

Overspending grants: Quickly realign your authorization policies for spending as well as the clarity of your accounting on a grant-by-grant basis. Even basic accounting systems such as QuickBooks and Xero are able to produce an income statement by grant if you set them up to do so.

Should We Change Our Accounting System?

accounting systems
Regarding the decision to change or not change accounting program, consider the following as part of your guidance system:
[1] how easily can the system (with the right people and processes) give you the insights that you require in order to make decisions WHEN you need those insights?
[2] how easy is it to find qualified accounting professionals at an affordable cost to use the system to the level that you require in order to get those insights? Remember that you might have people now who can do it, but how many more are out there and accessible? People change jobs for one reason or another.
[3] how much time does system troubleshooting take away from value-added time / how much do system issues slow down your ability to get those insights?
[4] how easy is it for independent auditors to access the data as well as any transaction backup (that’s jargon for “documentation”) and workpapers? This can impact audit price and on-time delivery of the audited F/S to the board, as well as whether you have to go on extension for the 990 each year.
[5] to what extent is downtime an issue? what are the risks of losing data or not being able to access it when you need it?
[6] does the system include other capabilities or integrate with non-accounting systems such as donor management?

How Should We Structure Our Profit & Loss Accounts?

Profit and Loss Structure
The Account:Subaccount structure is incredibly powerful because it facilitates both high-level strategic planning and more frequent tactical decision-making.
One issue is how to group accounts. For example, in the construction industry, does it make more sense to have Labor be a parent account and Drywall and other types of labor be subaccounts? Or does it make sense to have Drywall be the parent account and Labor and other drywall expenses be subaccounts?
It depends how you think, how you make decisions
You can have the best of both worlds if you set up your file cleverly.
More about that second point: In general, I believe that it makes more sense to group items differently than the COA o you can have 2 different ways of looking at the data.
In systems like QuickBooks Desktop, QuickBooks Online, and Xero, you can create an account structure for Profit & Loss (a.k.a. Income Statement) one way, and create items mapped to those accounts with the opposite hierarchical structure.
A few pointers:
[1] Anytime you use a parent:substructure, never EVER use the parent. And in the case of items, make the “Description on sales transactions” and the “Description on purchase transactions” to pop up by default as “DO NOT USE; SELECT SUBITEM”
[2] If you’re going to allocate labor to drywall and other services, remember to also allocate payroll taxes, union costs, workers’ comp, and the like. It’s extra work, but this is a policy that can and will impact profitability. See my next point.
[3] One of the great ways to use this information is to roll it up and see the major areas in which a project is most and least profitable and make changes accordingly. The owner could adjust pricing, have better leverage in negotiations, decide where to subcontract and where to have in-house people handle it, even decide to specialize in areas that are most profitable and not deal with other areas but partner up with another company for those…or learn techniques that other companies are doing to be more profitable in certain areas.
[4] it’s still useful to group other items such as meals, permits, & travel. If everything is grouped, then you get extra insights upon rollup.

Support an Auditor in Supporting You

Support an auditor in supporting you
Someone asked recently if it is reasonable for an independent auditor to request year-to-date (YTD) financial statements when putting together a bid for a financial statement audit.
Yes!
YTD financials are incredibly useful in determining scope/price. If there have been any significant changes since last year’s audited financials, they’ll see it. They’ll (hopefully) act accordingly – the fewer the changes, the lower the risk, the more reasonable the price, for example. More changes might be more areas for them to audit, more things for them to propose fixes on, they will need to price accordingly.
Don’t be afraid of a higher price, though. If an auditor is facing a tough situation and they have to continually have to write off too much time each year, they’ll fire the client and you’ll have to start over in your search, and THAT’S so much fun.
Also, if the YTD financials show a serious cash crunch, it could be problematic. Auditors aren’t allowed to be owed any money, so if they’re still owed this year’s audit fees when it’s time for next year’s audit, they won’t be able to do the work.
And if the YTD financials show a serious contraction and they think it’s not in your best interest to pay their fees but need someone who charges a lot less, they won’t waste their time or yours with a proposal.

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844-884-3766 | david@tieroneservices.net

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