What can small business owners do to prevent embezzlement in their business?

Pre-Screen new employees

One of the best ways to prevent to employee theft is to ensure that all new employees are carefully pre-screened. In addition to conducting a background and credit check on new employees, small business owners should make a point of speaking to former employers.

Make vacations mandatory

Employees who are tasked with handling cash or accounting duties should be required to take vacations. During this time, the owner or another employee can take over the responsibilities of the employee on vacation. This increases the potential of uncovering any fraudulent behavior.

Ensure that duties are segregated

You are looking for trouble if only one employee in your business is tasked with handling cash, recording, authorizing and reconciling transactions. This essentially means that there are no internal controls in place and the likelihood of embezzlement taking place is significantly increased.  Segregating these duties and assigning tasks to different employees will significantly reduce your risk e.g. don’t allow the same person who sends out bills to collect the mail and prepare bank deposits.

Get involved

Owner involvement is the most important element of internal control. Small business owners that don’t pay attention to their accounting and bookkeeping send a message to their employees that they could get away with theft.  Owners can get involved by ensuring an internal audit system is setup and maintained and overseeing at least some of the accounting duties. Here are some ideas for setting up internal controls:

• Require all checks above a certain amount be authorized by two people.
• Review accounts payable by checking cash disbursements and payments.
• Review checks, purchase orders and invoices for missing documents.
• Ensure there is a way for employees to anonymously report fraudulent activity and offer rewards for informants.
• Examine payroll records periodically to ensure there is no padding.

Review your financial statements every month

Timely and regular review of your financial statements will reveal possible threats e.g. large fluctuations in your cost of goods sold ratio, administrative expenses or percentage of returned merchandise should ring alarm bells and trigger an investigation.

Many small business owners are opting to outsource their bookkeeping function as a basic crime prevention strategy. An outsourced bookkeeping firm will act as an official on your behalf. Timely reconciliation helps detect and prevent embezzlement of funds from within your business.

BKSC Business Bookkeeping strives to add a layer of review and professional expertise to your accounting process to help strengthen your company’s internal controls.  We help you sleep better at night by knowing that your bank accounts are reconciled, balanced and all checks and funds are properly accounted for.

N.C. Department of Revenue
Post Office Box 25000
Raleigh
27640

Form NC-BR is a business registration application that covers income tax withholding, sales and use tax, machinery, equipment and manufacturing fuel tax. All taxpayers required to register for any of these taxes can do so by submitting Form NC-BR. Applicants that register online will receive their account numbers instantly.

What do I need to do when I hire a new employee?

For each new employee hired, obtain a North Carolina Employee’s Withholding Allowance Certificate, Form NC-4. Employees should complete Form NC-4 to determine the amount of tax to be withheld. Withhold North Carolina income tax in accordance with the employee’s withholding allowance certificate and the applicable withholding tax table. You can download the income tax withholding tables here. You should retain the original certificates on your files and submit copies to the N.C. Department of Revenue if:

• An employee claims more than 10 withholding allowances
• An employee claims exemption from withholding and the employee’s wages would normally exceed $200 per week.

If an employee refuses to provide a N.C. Employees Withholding Allowance Certificate then withhold as if he or she is single with no allowances.

Filing Frequency

Withholding tax returns are filed semi-weekly, monthly or quarterly depending on the average amount of tax you withhold each month. This table summarizes the N.C. requirements for filing frequency:

How do I file my Withholding Tax Reports and Pay Withholding Tax?

You can file your N.C. withholding return and pay the tax online at www.dornc.com. Payments can be made by bank draft, Mastercard or Visa. If you pay an average of at least $20,000 each month in N.C. withholding taxes, you are required to pay by electronic funds transfer (EFT).

Due Dates

If the due date falls on a Saturday, Sunday or holiday then the return is due the first business day following the Saturday, Sunday or holiday.

Penalties

There is a 10% penalty for late payment of tax due. There is also a penalty of 5% per month (max 25%) for failure to file the report when due.

The information provided above is a basic guideline for withholding tax in North Carolina. You should bear in mind that there are a number of withholding requirements that have been omitted from this guide, e.g.:

• The treatment of nonresident employees.
• Withholding from pensions, annuities and deferred compensation.
• Withholding from nonresidents for personal services performed in North Carolina.
• Withholding on contractors identified by an individual ITIN.
• Payments exempt from withholding.

The North Carolina Department of Revenue provides instructions for handling the above in publication, NC-30 - Income Tax Withholding Tables and Instructions for Employers.

A major challenge for bookkeepers, accountants and tax professionals has always been finding a workable solution for sharing a client’s Quickbooks company file. There are a few options, namely:

• Physically exchanging the file
• Emailing or using a portal
• Accessing the file remotely
• Using an accountant’s copy

Each of these methods has its own disadvantages and limitations. The company file may be too large to email. Accessing the file remotely can only be done with Quickbooks Premier and only one user can take control over one remote computer. It requires a user to be physically present at each computer in order to setup a session. Physically exchanging the file is a time consuming and inconvenient. Using an Accountant Copy is just as frustrating. The process of exporting and importing the Accountant Copy is labor intensive and the risk of the file becoming corrupt is relatively high.

What about Quickbooks Online?

By now, you are probably familiar with SAAS (Software as a Service). It refers to any application that can be hosted remotely and accessed through a web browser. Intuit released Quickbooks Online in 2001, giving small businesses access to their Quickbooks software application via the internet. It hasn’t been a popular choice for bookkeepers and accountants because it’s far from the quality of the desktop version of Quickbooks. There are many features available in Quickbooks that are not available in Quickbooks Online e.g. Quickbooks Online does not provide purchase orders, inventory tracking, job costing, forecasts, sales order tracking, online bill payment, payroll input and more. Report customization is limited too.

Advantages of Quickbooks Hosting

Fortunately, there is a way of getting the full Quickbooks experience online without having to use Quickbooks Online.  How does it work? The full desktop version of Quickbooks is hosted on a server and it is accessed via the internet using either a Remote Desktop or Citrix application. Clients have access to their Quickbooks file anywhere they have an internet connection and it appears to be running on their PC. Of course, the beauty of this solution means that you are not limited to accessing your Quickbooks file using a laptop or PC. Your Quickbooks data can be accessed from any internet enabled device like a smart phone or iPAD.

What does this mean for our clients?

• Our clients have 24/7 access to their up-to-date Quickbooks file from anywhere in the world (provided they have access to the internet).
• Multiple users can have access to the same Quickbooks file at anytime.
• Our client’s data is secure. We use a third party Citrix application hosting provider with a SAS 70, Type 2 data center. They back up all our data every hour and once daily. In addition, all data is encrypted using 128 bit encryption technology.
• Our client’s don’t have to worry about Quickbooks updates or maintenance. Our hosting provider takes care of all that.

BKSC Business Bookkeeping offers hosted Quickbooks to all their clients. We think it’s a win-win solution all around. It’s a solution that ensures everyone is working on the most up-to-date information. Our clients can make important business decisions anywhere, anytime knowing they have the most current information at their fingertips.

One of the leading causes for small business failure is lack of liquid assets. Without cash, businesses cannot pay for their medium and long-term investments and in the worst case scenario it means they cannot meet their regular obligations such as their employee payroll.

THERE ARE TWO WAYS TO LOSE A BUSINESS:

1. HAVING TO PAY OUT MORE IN EXPENSES THAN RECEIVED IN INCOME.
2. HAVE A SUCCESSFUL (PROFITABLE) OPERATION BUT RUN OUT OF CASH.

CASH FLOW IS THE ABSOLUTE KEY!

Undercapitalization

An undercapitalized business may be one that cannot afford current operational expenses due to a lack of capital, one that is over-exposed to risk, or one that is financially sound but does not have the funds required to expand to meet market demand.

The success of any small business relies heavily on proper capital planning. Failure to acknowledge the importance of capital planning will haunt small business owners before start-up, soon after start-up, during economic downturns, annual cycles and business expansions.

Avoid problems through proper planning.  Estimate your income-versus-expenses in advance. Know exactly when deposits will be made and when expenses need to be paid. This becomes more difficult when you need to carry a large inventory or when clients are allowed to pay you later. Money tied up in inventory or unpaid customer invoices is not money in the bank. A way to avoid undercapitalization is to create a realistic assessment of the business expenses and projected financial needs. Based on this assessment, you can draft a cash flow projection which will help you more accurately estimate the funds needed to stay in operation.

The best time to avoid undercapitalization is when you aren’t undercapitalized. Visit lenders with your projections when you still have sufficient cash and establish a line of credit as a safety net.

Cash Management and Planning

Cash is the lifeblood of a business. Managing cash flow efficiently is one of the most important tasks for any business owner. The goal of cash management is to maximize the availability of cash not invested in inventory or fixed assets. If for any reason, a business cannot pay its financial obligations then it’s insolvent. Insolvency is the primary reason for businesses going bankrupt.

What can you do to avoid cash flow problems?

• Create a realistic cash flow budget.
• Intensify efforts to collect outstanding payments owed to the business.
• Offer small discounts for prompt payment.
• Monitor and prioritize all cash disbursements.
• Liquidate superfluous inventory.
• Assess areas where operational expenses may be reduced.
  

This article was published at Accounting Services of Charlotte, NC