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When Should You Consider Outsourcing Your Accounting Operations?

When Should You Consider Outsourcing Your Accounting Operations?

  • Do you spend late nights and weekends struggling to keep up with your company’s accounting records? Or worse, does this time intervene with the time spent running the operations of your business?
  • Are you unable to assess the profitability of your business or perhaps have difficulty understanding the cash requirements for the next 60, 90, or 365 days?
  • Do you feel your margins could be improved but aren’t sure how to evaluate them when looking at your financial statements?
  • Would some assistance in projecting your business operations over the next few years help you establish priorities with your employees?

If you answered yes to any of these questions, then you are in good company. Many business owners and executives feel the same way and there are ways you can get the support you need to move your business ahead.

Free Download: Discover how outsourced accounting can provide more visibility into your business

The first step is acknowledging that, although operations are the most key aspect of any business, accurate financial information is vital to making important business decisions. Having visibility into cash flow and knowing where your margins can be improved will enable you to take your company to the next level.

Now the next step is determining if hiring a full-time accounting resource to get your company’s financials in order makes sense from a cost and expertise standpoint.

  • Is there enough work for a full-time accountant? For many companies, a 40-hour a week accountant would be in excess of the time required to perform the basic accounting functions they may need, e.g., monthly close process, issuing invoices, entering and paying bills, performing payroll, etc.
  • Is there too much work for your current full-time resource? And are you asking them to do things beyond or below their skill set? This is a very common occurrence with any role in a growing business. This is a lose-lose situation for everyone involved and can lead to internal turnover.
  • What level of experience will they need to have – CFO, controller, staff accountant? If you are not in a position to support the costs of more than one accounting resource, will you hire a CFO and then over-pay them to do basic staff-level accounting? Alternatively, you could hire a staff accountant and task them with CFO responsibilities; however, both of these options can cost your company significantly and lead to ineffective decision-making.

If your company needs the resources of a complete accounting team but is not in a position to support the costs and management time of that entire, full-time team, then outsourcing your accounting functions is a very viable, flexible, and turn-key option for your business. 

Read more: 3 Ways Outsourcing Accounting Can Improve Your Business

Outsourced accounting companies such as Signature Analytics provide you with flexibility in terms of the number of hours of service to receive, provide a higher level of experience through oversight by more senior-level individuals, and ensure efficient service by experienced accountants (staff accountants through CFO level expertise). The accounting teams at outsourced accounting companies work with multiple clients so they have identified time-saving methods that allow them to complete challenging tasks in significantly less time than a typical bookkeeper.

In addition to acting as the financial arm of your business by providing the resources of a highly experienced accounting department on an outsourced basis, there are a number of other situations in which hiring an outsourced accounting company to handle your financial information might make sense for your business:

Preparing for a financial statement audit or review

Many business owners believe that a financial statement audit is a healthy process for their business and provides confidence to their investors in the financial information; however, most do not realize the resource drain that an audit can have on their business due to the significant number of requests for supporting information and the technical accounting expertise which must be applied to the financial statements. Due to independence restrictions, audit firms cannot assist in performing the accounting functions at the companies they audit and therefore must rely on management to determine proper accounting rules. These issues tend to cause significant overrun bills from the audit firm due to the inefficiencies experienced and can be extremely costly for a business. Engaging an outsourced accounting company can provide management with the peace of mind that they have a team of accounting experts – most of which have previous experience performing audits – that understand what audit firms are asking for and know how to produce that information in a timely manner.

Investors requesting financial projections

Investors love to see what the future of their capital will produce so that they can assist in both financial and operational decisions; however, many business owners do not have the expertise to prepare financial projections and therefore may provide information at a level not detailed enough for the purpose or may be missing significant costs which need to be considered. Outsourced accounting firms that provide support with cash flow management and projections have CFO-level experts who are experienced in understanding a business operation in a very timely fashion and can translate such information into the future potential results of the organization.[gap height=”10″]

Missing out on potential tax savings

When a tax provider receives your financial information they may not search into all of the accounts to find tax deductions. If transactions have been classified to incorrect accounts, tax preparers may not be aware of their existence and therefore not consider simple deductions. A simple example would be meals & entertainment expenses, often a deductible expense, in which some transactions may end up recorded in office expense categories or supplies or miscellaneous. Unless the tax preparer knows that such expenses may be improperly classified, the deduction will go unreported resulting in higher income tax. An outsourced accounting company can organize accounting information and work directly with tax professionals to help identify as many tax savings as possible.

Looking for capital investment from financial institutions

Perhaps you have a capital requirement in the near future and plan to approach different financial institutions. Providing financial information with obvious errors, inconsistencies, or lack of organization could severely impact your ability to raise capital as it may be challenging for the lenders to truly understand the results of the business without transparent financial information. When hiring an outsourced accounting company, you can be confident that the financial statements are timely and accurate. Furthermore, they will provide you with a high-level financial resource that can assist in preparing analyses of the financial information in a professional manner making the lender proposal process less arduous. These statements may be used as a resource to assist in conversations with those providing capital assistance to ensure a complete understanding of the business’s results of operations.

Free Download: Discover how outsourced accounting can provide more visibility into your business

If you think your company could benefit from outsourcing your accounting services, contact Signature Analytics for a free consultation.

 


 

Discover how outsourced accounting can provide more visibility into your business

How To Protect Your Small Business From Employee Fraud

How To Protect Your Small Business From Employee Fraud

Whenever a high-ranking executive from a prominent organization gets involved in a case of embezzlement or employee fraud, it makes headlines around the world.

These are a few more well-known examples of fraud:

  • Dane Cook, an American comedian, whose brother who was his business manager and took advantage of him for about $12 million
  • Girl Scout parents who were caught stealing money from their daughter’s cookie sales (average estimates of $10,000)
  • Bernie Madoff, an American market maker, investor, and financial advisor, who committed the highest financial fraud in US history worth almost $65 billion

These examples might seem unlikely to happen to your company, and as a small business owner, you may believe your organization is immune to theft and fraud.

After all, who else knows and understands their employees best if not for you? In your heart of hearts, you likely believe they would never do something like embezzling money. If anything, you have a rigorous hiring manager who conducts thorough background checks, so, therefore, no potentially malicious individual could be brought on to your team.

Unfortunately, your thinking would be flawed.

Read More: 5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

What Advice Do Fraud Experts Give?

Any employee, when presented with the right set of circumstances, is capable of committing fraud.

According to the Association of Certified Fraud Examiners’ (ACFE) 2018 Report to the Nations, asset misappropriation was by far the most common form of occupational fraud, occurring in more than 89% of cases and leading to losses upwards of $110,000.

Small businesses can be especially devastated by fraud, as these companies often have fewer resources to prevent and recover from malicious acts.

Organizations with less than 100 people often must trust their employees with more information compared to businesses with many more workers with the ability to have anti-fraud controls in place.

While employee fraud prevention may not be top of mind for you, consider that the median loss for small organizations was almost twice as high as those incurred by organizations with more than 100 employees.

The ACFE reports two key reasons why small businesses have an increased risk of employee fraud:

  1. a lack of basic accounting controls
  2. a higher degree of misplaced or assumed trust

In a small to medium-sized business, the employee handling the bookkeeping is most likely to be the one to commit a crime as they can see all of the numbers, and they have your trust. However, in small businesses, there is a 29% chance that the owner or executive is the one who will commit fraud.

Read More: How To Spot Employee Fraud

How Basic Accounting Controls Can Make A Difference

Often, company leaders believe that spending an excessive amount of money on implementing complex systems of controls will save their company from employee fraud. This is not the case.

Complex controls can surely make a positive impact, but most often, starting with the basics can set you ahead of the curve.

In the ACFE 2018 report, it was noted that internal control weaknesses were responsible for nearly half of all frauds committed. Businesses that had implemented anti-fraud controls had lower losses overall, which means that these controls are working to keep the company safe.

The report also found that when businesses routinely monitor and audit their back-office functions, fraud is reduced. Even with the information found on how these controls can make a difference, only 37 percent of businesses polled had these internal controls in place.

If you would like help implementing internal controls, even at the most basic level, you can reach our team of experts at any time. Our experienced team can make recommendations based on the industry you are in, the size of your company, and the budget you have in place. Protecting your business from fraud is imperative.

What Can You Do To Protect Your Business From Employee Fraud?

Don’t wait for a fraud to occur. It is essential to be proactive and preventative and put processes in place.

Studies show that the more employees believe they will get caught, the less likely they are to commit fraud. Below we have outlined some practical tips for small business owners to reduce the risk of loss due to employee fraud:

  1. Don’t depend solely on external audits: External audits are usually performed once per year and months after the year ends. Even if the audit uncovers fraudulent activity, it may have been occurring for 12 months or longer before being discovered.
  2. Segregate accounting duties: Avoid allowing the accounting function to be controlled by a single individual and segregate accounting duties in key areas instead. Such duties and responsibilities may include:
    -Recording and processing transactions
    -Sending out invoices
    -Collecting cash
    -Making deposits
  3. Routinely review financial information: If you have a small team and complete segregation is not possible, the business owner or an outside accounting firm should review the bank statements (preferably online or before the accountant has opened them) and bank reconciliations every month. Vendor payments should also be periodically reviewed. A common scheme is to set up fictitious vendors and manipulate bank statements with photo editing software before printing and filing them for review.
  4. Ensure accounting oversight: Hire an outsourced accounting firm to provide oversight, support, and possibly management of the in-house staff. They will start by reviewing your current accounting controls, workflows, and processes to make recommendations for improvements, implementing best practices, or even take on some of the accounting activities.
  5. Get fraud insurance: Purchase a bond or fraud insurance to protect your business if a theft does occur and/or have trusted employees who handle the finances bonded.
  6. Require your bookkeeper to take a vacation: Embezzlement and other types of fraud require a constant paper trail to go undetected. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed. Assuming your books are closed monthly, this is not an easy request with a small team and another reason to build a trusted relationship with an outside firm.

According to the ACFE’s 2019 Benchmarking Report, 58% of organizations have inadequate levels of anti-fraud staffing and resources. For your company, this may mean conducting background checks will not be enough to protect your company from in-house fraud.

How Can I Protect My Company?

By partnering with the Signature Analytics team, we can recommend industry-specific suggestions for your company. We help our clients put preventative controls in place and provide an appropriate level of oversight of their financial books and records to ensure accuracy.

Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team. We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff.

To learn more about how we can help ensure your business has fraud prevention, contact us for a free consultation.

The Importance of Cash Flow Management for Small and Mid-size Businesses

The Importance of Cash Flow Management for Small and Mid-size Businesses

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

Read More: 10 Tips to Help Improve Your Company’s Cash Flow

 

We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

Download our latest e-book:

What Should Small and Mid-Size Businesses Expect From Their CFO?

What Should Small and Mid-Size Businesses Expect From Their CFO?

The CFO’s role within an organization depends on several factors. These components may include the expectations coming from the CEO and board of directors, and may also vary depending on the industry, corporate strategy, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

Below, the Signature Analytics team has outlined some general responsibilities that every business should expect from their CFO.

The Importance of Forward-Looking Financial Analysis

The foundation of any company’s accounting and finance function is to produce timely and accurate financial information for the business. The CFO oversees these accounting and finance functions, but their true value comes from the ability to provide forward-looking financial analysis. This analysis should be focused on driving additional profitability and value to the company.

Read More: Outsourced CFO Services – Benefits of a Part-Time CFO

Whether you have a full-time, part-time, or outsourced CFO, below are some examples of the forward-looking financial analysis you should expect from the CFO role:

1. Cash Management & Forecasting

Can you predict when your business will have a surplus of cash that needs to be managed or when you will have a shortage of money that requires financing?

Cash flow problems can kill businesses that might otherwise survive. Your CFO should be monitoring cash flow and analyzing cash flow projections regularly to ensure your business does not run out of cash.

2. Budgeting & Expense Control

Does your business have a budget? Do you receive an analysis comparing prior year actual, current year actual, and current-year forecast on a regular basis?

Your CFO should own the budgeting process by incorporating input from each department for the most accurate and complete projections. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

Read More: How CFOs Add Value To Your Business

3. Compensation Plan Development

Is the compensation of your employees aligned with the goals of the company?

The CFO of a company should help to structure employee compensation plans that incentivize efficiency and align with the financial goals of the company.

eGuide: What Business Should Expect From Their Accounting Department

4. KPI Development & Analysis

Are you maximizing margins? Are profits analyzed by revenue stream? Are employees being utilized appropriately to maximize profitability?

KPIs (Key Performance Indicators) are different for every business. They should act as the company’s compass, and the CFO serves as the navigator.

It is the responsibility of the CFO to work with those in operations to help develop KPIs applicable to the company and support the analysis of those KPIs regularly. The CFO should be using the data from the KPIs to assess business performance in real-time. Making changes that directly improve KPIs can help build the future value of the company.

Read More: What Are Key Performance Indicators and Why Are They Important?

5. Board & Investor Communications

Are you providing valuable financial information to your Board of Directors so they can review the trends of the company’s operations and assist in making appropriate decisions? Is the information presented professionally?

Your CFO should be preparing presentations for your board members that effectively communicate the company’s financial information in an organized manner. The information should illustrate trends to visualize projections so the data can help drive business decisions.

6. Securing Financing & Raising Capital

Do you review your banking relationships regularly? Are you confident you have access to financing on the best possible terms for your business? What are the capital needs of the company now and in the future? What is the best way to meet those needs?

Your CFO should play a key role in identifying and securing investment and financing. They should identify capital requirements before approaching financial institutions and investors to ensure you raise the appropriate amount of capital required to support your growth plans.

A successful CFO should also prepare presentations of the company’s financial information, allowing potential investors or lenders to understand the data and the companies performance.

7. Tax Planning

How often are communications occurring with the company’s tax advisor to maximize all tax-related strategies?

Your CFO should maintain consistent communication with tax preparers to minimize your company’s potential tax liability.

8. Ongoing Analysis & Review

All of these responsibilities should be considered ongoing processes that are revisited on a regular pre-determined schedule and modified based on the most recent financial information available.

Furthermore, all of the results should be measurable to track the success of the performed analysis.

eGuide: What Business Should Expect From Their Accounting Department

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company.

Each of the outlined goals above can help maximize profitability and value for the business, and, if managed appropriately and adequately, companies with the correct financial infrastructure can witness significant operational improvements and growth. Having this kind of efficiency will allow you to think about your business in new ways and likely uncover new possibilities for what’s next.

If your business requires any (or all) of the forward-looking financial analysis mentioned above, but you’re not in a position to hire a full-time CFO or may have a team that just needs additional support, the team of experts at Signature Analytics can help.

Our highly experienced accountants can act as your entire accounting department (CFO to staff accountant). If that solution isn’t the right fit, our team can complement your internal accounting staff, to provide the ongoing accounting support, training, and forward-looking financial analysis necessary to effectively run your company, analyze operations, and guide business decisions.

Have questions about our process? Contact us today for a free consultation.

 


 

Do you know your numbers?

Tips And Tricks For Filing 1099s: The Deadline Is In January

Tips And Tricks For Filing 1099s: The Deadline Is In January

The beginning of the year is anything but dull, but after the holiday celebrations, it’s time to settle down and get organized for tax season. While employees might not have taxes on the brain until April, businesses, and employers are busy preparing early on. It’s crucial to start this process sooner rather than later, so no paperwork is forgotten. One essential form to remember is 1099.

What Is A 1099 IRS Form?

A 1099 IRS form is a record of a person or an entity providing payment to someone. There are several types of IRS 1099 forms, such as 1099-MISC, 1099-INT, 1099-CAP, and more. These informational returns are used to record payments to individuals or partnerships for interest, services, bonuses, and other types of income paid during the year.

Please note that business owners must file 1099 forms with the IRS and send a copy to the individual each year by January 31st, the same as the W2 filing deadline.

What Are Examples Of The 1099 Form?

  • If you paid more than $600 to a freelance website designer, you must file Form 1099-MISC
  • If you have convertible notes payable that accrue interest during the year, you must file Form 1099-INT
  • If you paid dividends to inventors, you must file Form 1099-DIV
  • If you forgave an outstanding debt during the year, you must submit form 1099-C
  • All amounts paid to law firms must be reported on a 1099, regardless if the law firm is categorized as a corporation and even if the amounts are less than $600

Here Are The Accounting Best Practices for 1099s

Good recordkeeping is key to fulfilling this requirement and meeting the January 31st deadline:
Payments to vendors should be categorized in your books and records by vendor and not merely by category or expense line item.
Small businesses should always request a form W9 from any vendor with whom they conduct business. A W9 will tell you if the vendor is a Corporation (excluded from 1099 requirement) and what their federal tax ID number is (needed for the 1099).
Read More: Financial Tips From Successful Leaders

These Are Common Mistakes To Avoid

Below are some examples of mistakes commonly made by small business owners when it comes to 1099 rules:

  • Classifying employees as a 1099 vendor when they meet the IRS definition of a W2 full-time employee.
  • Giving expensive gifts or prizes to sales representatives or others without issuing a 1099 for the value of the gift.
  • Not filing a 1099 for interest accrued on convertible notes or other bonds.
  • Not keeping proper records or requiring a W9, so when it comes time to prepare the 1099s they are filed late due to trying to collect all the necessary data from each vendor.

Read More: Tax Planning Strategies: What You Need To Know For 2020

Get Started On The Forms Today

Do not wait until the last minute. Reduce the January time crunch by reviewing your vendor list with your accountant in December if you can remember. Find and address issues early and make sure you have a plan to get the 1099s filed by the January 31st deadline.

Signature Analytics Can Help

If you need help preparing the data necessary to complete your 1099s, have questions about who you should be sending this form to, or any other financial paperwork inquiries, please contact us today.

 

 

The Top 5 Financial Reports Every Business Owner Should Review

The Top 5 Financial Reports Every Business Owner Should Review

There are several financial reports that will provide insight into the past, present, and future financial state of the business. As a business owner, it is critical to have an annual report of this financial data as it will allow you to more effectively run your company, enable you to better analyze operations, and help guide business decisions.

Of all the financial reports, below are five of the most essential accounting reports every business owner should be reviewing on a regular and annual basis to gain a better understanding of the company’s financial performance.

1. Balance Sheet

The Balance Sheet is a financial statement summarizing a company’s total assets (current, non-current and intangible assets), liabilities (financial obligations), and shareholders’ equity (investments and retained earnings) at a specific point in time, usually at the end of an accounting period. It provides a snapshot of a company’s financial position, including the economic resources the company owns, owes, and the sources of financing for those resources.

The Balance Sheet can be used to identify trends and make more informed financial accounting decisions. It is also important to lenders, as they will use it to determine a company’s creditworthiness.

2. Income Statement

The Income Statement is sometimes referred to as the Profit and Loss Statement (P&L), Statement of Operations, or Statement of Income. The Income Statement summarizes the total revenues and expenses incurred by the business, showing the profitability (net income or net loss) over a specified period of time, usually a month, quarter or year.

The Income Statement is used by internal stakeholders (such as the management team and board of directors) as well as external stakeholders (such as investors and creditors) to evaluate profitability and help assess the level of risk for an investor or creditor. In order to have a viable and valuable company, revenues must exceed expenses.

3. Cash Flow Statement

The Cash Flow Statement summarizes all cash inflows and cash outflows of a business over a period of time. This statement is different from the Balance Sheet and Income Statement because it only takes into account cash money activity; it does not account for non-cash activity such as sales or purchases on credit or depreciation.

The Cash Flow Statement is presented with three sections: operating, financing and investing activities, and indicates which areas of the business are generating and using the most cash. One of the best uses for the Cash Flow Statement is to estimate future cash flow which will assist with budgeting and decision making.

Read more: The Importance of Cash Flow Management for Small and Mid-size Businesses

The Cash Flow Statement, Balance Sheet and Income Statement together make up the standard financial statement package. These financial statements should be prepared by your accounting team on a monthly basis after the month-end close procedures have been performed. They can (and should) be used to calculate key performance indicators and monitor them over time.

4. Accounts Receivable Aging Report

The Accounts Receivable (A/R) Aging Report categorizes outstanding accounts receivable into groups based on the due date of the invoice, typically current, as well as 1-30, 31-60, 61-90 and >90 days overdue.

A common source of cash flow problems (especially for small and mid-size businesses) is poorly managed accounts receivable. The more cash you have tied up in receivables due to slow-paying customers and delinquent accounts, the less cash you have available for running your business. Reviewing the A/R Aging report will help companies proactively manage the receivable collections process immediately upon invoicing and create more accountability for the person responsible for collections.

Read more: Managing Your Revenue Cycle: 6 Accounts Receivable Best Practices

The A/R Aging Report can be generated out of most accounting systems and can be reviewed at any time. If collecting on accounts receivable is an issue for your business, a weekly review of this report may be necessary to assist in identifying past due accounts. Once these accounts are identified, collection procedures can be initiated to improve business cash flows.

5. Budget vs Actual

As the name suggests, this report is a comparison of actual results, primarily from the Income Statement, against the budgeted amounts that were projected at the beginning of the period. This report will allow the reader to assess how closely a company’s spending and revenue generation meets the financial forecasting projections included in the budget. It can help identify areas that were over and under budget, indicating the ability to hire additional employees or bringing attention to a gross profit margin not in line with financial reporting expectations, for example.

The Budget vs. Actual Report should be prepared on a monthly basis and reviewed with the financial statements to determine if any areas of the business are not meeting expectations and should be investigated further.

We Can Help

Our highly experienced accountants can complement your internal accounting employees, or act as your entire accounting department (CFO to staff accountant) on an ongoing basis. We will consistently provide you with timely and accurate financials and reports (like the ones mentioned above) on a monthly basis, as well as the actionable financial analysis you need to effectively run your company, analyze operations, and guide business decisions. If your business needs additional accounting support, contact us today to schedule a free consultation.

5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

5 Ways to Improve Internal Accounting Controls and Oversight in Your Business

Earlier this year, a company approached us after identifying some unusual checking activity while their bookkeeper was out of town for a week at training. They asked us to come in to look at all of the activity and determine if their accounting records were accurate. One of our accounting managers went to their office the following day to review the books (while the bookkeeper was still away at training) and identified that the bookkeeper had been colluding with a vendor to issue fraudulent payments and splitting the proceeds.

Needless to say, the company fired the bookkeeper for theft. The company requested that our accountants take over the role until they could find a replacement and we have continued to provide ongoing internal control accounting support to the company, including oversight for the new bookkeeper.

As a business owner, often your main focus is on the operations of the business. We have worked with several business owners who did not make financial information a priority, instead of focusing only on revenue. We work with other business owners who also recognize the importance financial statements play in understanding the state of the operations of their assets; however, with the best of intentions, they delegated the accounting work to an available employee (such as an office manager or admin), or to a bookkeeper with little to no accounting background, while providing no oversight at all.

How to Protect Your Business From Employee Fraud

Employee fraud is more common than you may think, with small organizations (those with fewer than 100 employees) being the most common victims of organizational fraud. As a business owner, you have to take the necessary steps to ensure you’re protected.

Here are 5 ways to improve internal controls and oversight within your organization to help protect your business from employee fraud:

1. Segregate Accounting Duties

Small businesses usually depend on one employee or a bookkeeper to ensure the process in all aspects of the accounting process, including authorization, execution, custody, and posting of transactions. Ideally, the processing of cash receipts and payments will be separated, with segregation of duties with different people approving invoices, preparing checks, signing checks, and reconciling the bank accounts. Allowing one individual to handle cash or checks received, the deposits, and the posting of payments in the system increases the risk of fraud. These processes should be segregated among different individuals. If this is not feasible for your organization, it is advisable to rotate individuals performing the above tasks periodically.

Additionally, you could use an AP risk and control matrix to help your company assess and minimize inherent risks resulting from faulty accounting data and residual risks, which can remain even with good controls. AP automation providers, like Sampli, can help companies prepare AP risk and control matrices by keeping detailed and easily accessible accounting data, which gives business owners and CEOs a complete picture of what they’re up against.

You could also consider the use of an online payment service that can be accessed anywhere and provide you with increased account control over the payment process. Bills and payments can be authorized conveniently prior to any cash disbursement. If your situation still warrants physical check policies, consider signing them yourself or authorizing an additional signer. Ensure objectives that the signer is separate from the person issuing the checks and that the signer matches the checks to invoices prior to mailing. Finally, be sure to store blank checks in a safe place restricting access to avoid risk.

Free Download: Discover how outsourced accounting can provide more visibility into your business

2. Restrict Access to Financial Systems

The most common accounting software used by businesses gives its users the ability to edit and delete previous transactions which could lead to easy concealment of theft. Business owners should retain ADMIN rights (if possible) to the company’s accounting system and consider restricting user access to only areas necessary for their functions. This will help reduce the chances of an individual creating false entries and covering up their tracks. A review of voided and deleted transactions will show any adjustments or deletions and can be instrumental in exposing irregularities in procedures.

If approval rights are granted to an employee or bookkeeper in your online payment service, a review of credit memos should be performed to ensure the validity of issued credits and deter the creation of false credit memos to cover any intercepted cash.

3. Increase Oversight

Internal controls without oversight are not good enough. You, or a trusted resource, should diligently review bank statements, check or payment registers, and bank reconciliations regularly. Review payroll statements for phantom employees and unapproved raises, hours, or even expenses. Impress upon the employee the need to keep supporting documents and you should periodically review some transactions and supporting documents for validity and accuracy.

Most importantly, business owners need to follow policies and procedures to make it a priority to review financial reports and understand the trend and changes in the business’s financial data. There should be a focus on understanding month over month or quarterly fluctuations as well as variances between budget and actuals.

4. Have Financial Statements Reviewed by a Third Party

To support bookkeepers and other in-house accounting efforts, business owners should consider utilizing their CPA to periodically review the financial statements. An individual who knows that the work performed will subsequently be reviewed is more likely to be deterred from committing fraud. An outside accountant can be instrumental in identifying inaccuracies and inconsistencies in the financial records as well as helping business owners better understand the procedures of their financial data.

Free Download: Discover how outsourced accounting can provide more visibility into your business

5. Require Employees to Take Vacation

In the client example mentioned earlier, the company identified the unusual checking activity while their bookkeeper was out of town for training. Embezzlement and other types of fraud require a constant paper trail cover-up in order to go undetected in accounting records. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed.

Read more: Employee Fraud is More Common in Small Businesses – Are you Protected?

We Can Help

Signature Analytics provides small and mid-sized businesses with the resources of a full accounting team on an outsourced basis, so our clients achieve effective segregation of accounting duties without having to hire additional full-time accounting staff. We ensure that all of our clients have preventative controls in place and provide an appropriate level of oversight and challenge for the company’s financial books and records.

To learn more about how Signature Analytics can help ensure your business is protected from employee fraud, contact us for a free consultation.

 


 

Discover how outsourced accounting can provide more visibility into your business

Top 5 Questions to Ask When Closing Fiscal Year

Whether you are a new business owner or one that’s been in business for years, understanding requirements of a fiscal year close can be confusing. Keeping your financial information and records accurate year-round is critical to the success of your business, and it makes things that much easier during fiscal close.

Here are the top 5 questions you should ask, as you approach the process of closing your 2015 books:

  1. Have you recorded all your revenue for 2015?
  2. Do you have organized processes to record expenses in a timely manner?
  3. Does your accounting function have oversight, checks and balances to ensure your books are accurate on a monthly basis?
  4. Have you contacted your tax professional to schedule a meeting? Definitely try to avoid the March 15th and April 15th rush!
  5. Did you make quarterly estimated tax payments throughout 2015? If not, you should ask your tax professional if this is an option in 2016.

We Can Help

If you need assistance with your fiscal year end close, contact us today. Our outsourced accounting teams are locally based and nationally focused. We can help you with this effort, as well as other accounting and financial analysis needs of your business.

Listen to our President Jason Kruger on San Diego’s 760AM Radio Show “It’s Your Money and Your Life”

Listen to our President Jason Kruger on San Diego’s 760AM Radio Show “It’s Your Money and Your Life”

It’s Your Money and Your Life is a talk radio show on 760AM KMFB San Diego. On the show, Richard Muscio and co-host Joe Vecchio feature notable guests providing valuable information on financial and business matters as well as issues about your life, your leisure and your legacy.

On July 22, 2015, Richard and Joe interviewed the President of our San Diego office, Jason Kruger. In the audio below, you can hear Jason discuss Signature Analytics and the ways we support growing business by acting as their accounting and finance department. A few of the topics discussed include: how the cloud has changed accounting, ways to maximize the value of your company in preparation for an acquisition or liquidity event, the importance of internal accounting controls, avoiding overpayment of taxes, and much more.

Listen to the Interview


Listen to more It’s Your Money and Your Life podcasts commercial-free at www.iymoney.com.

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