Bookkeeping Shortcuts That Lead to Internal Control Weaknesses

As a business owner, you need to ask yourself (or your clients) some very important questions about how your bookkeeping data is entered into your accounting software.
1. Do you know how much money you pay to all of your vendors?
2. Could you print out a detailed listing showing the total amount paid to each vendor?
3. Would that total amount include a lump sum or could you see how much you spent on a specific cost?
4. Can your software print out all of the contact information for your vendors?
5. Does your bookkeeper enter more journal entries to record financial transactions rather than tracking the actual transaction by payee name?
6. Does your bookkeeper reconcile your business credit cards?
7. Are your credit card receipts accounted for?
8. Are your vendor hard files a mess and you can't find anything?
An enormous fraud and internal control weakness in the accounts payable function is not tracking vendors in the accounting software. This happens so often when the business uses credit cards to pay for all of the business and personal expenses so that they can accumulate mileage or points from the credit card company. When the bookkeeper has to enter in hundreds of charges per month, they don't seem to want to break it down and enter the charge in as a credit card transaction by recording it to the proper vendor. They tend to enter the transaction into the bookkeeping system from the point of payment and group it straight to an expense account without tracking who the expense was for. Realistically, this type of entry only shows that XYZ Company paid $5,000 to American Express, yet $4,500 was to Builders Supply for materials on a job site. This type of entry system does not allow you to see how much of that actual payment made to American Express was paid to Builder Supply. Yes it may show that your supply expenses was $4,500, but it is lacking the "to who and what for" information that causes the weakness.
When payments are entered without tracing who the vendor is, this creates several problems.
1. Potential loss on profits
2. Tracking vendors that require 1099's
3. Tracking billing schemes or purchases with a shell company
4. Overpayment on purchases
5. Not confirming receipt of materials or merchandise.
The solution is to set up specific accounting controls and requiring your bookkeeper to enter all vendor purchases properly so that you can track your total costs per vendor.
Most small business computer software is integrated with the credit card companies to import the data directly into the computer system. If you have the ability to use this function, do. It will save time for your bookkeeper from entering in all of those meal expense receipts.
Don't allow shortcuts or laziness to be an identifying factor in your bookkeeping system, it is doing you more harm than good.