Friday, January 27, 2012

Selecting Mrs Bookkeeper

Let’s assume that you decided to hire an independent bookkeeper. How should you interview and select such a bookkeeper?
Recruiting in general, whether it is for a bookkeeper or any position, is more of an art than a science, so there is no simple recipe that will ensure that you get the best bookkeeper in the door, but there are criteria that will enable you to mitigate risks. Here’s a short checklist and I’ll cover each item in more details below:
  • Professionalism
  • QuickBooks knowledge
  • Accounting knowledge
  • Price
  • Availability
  • Referencechecks
Professionalism
Why do I start with this criteria? Because it is the single most efficient factor to trim your list of candidates down. If you are reviewing a long list candidates and you test them first on their QuickBooks knowledge, you’ll shrink your list by 50% pretty quickly. If you test them on professionalism first, you’ll shrink the list by 80% right from the get go and you’ll save yourself a lot of time. What do I mean by “professionalism”? That’s the whole package of people skills that the bookkeepers expose to you. How crisp and well written are their emails? How friendly are they on the phone and in-person? How punctual are they to the interview? How well dressed are they? How well do they listen? Did they prepare for the interview by researching your company? A bookkeeper who doesn’t score high on this dimension will cause you problems down the road, because good bookkeeping is not only about the accuracy of the data that you get into QuickBooks. A bookkeeper is a consultant and as such, the bookkeeper needs to know how to adapt to your industry and company, understanding your needs and adapt his/her work to your needs.
QuickBooks knowledge
There is an enormous difference between being knowledgeable in QuickBooks and knowledgeable in accounting. QuickBooks appears simple to use if all you need to do is reconcile bank accounts, but as soon as you start pushing the envelope (job costing, sales tax, inventory management, integration with 3rd party apps, etc…), it’s a whole new ball game. Even if you majored in accounting in college, it won’t help at all. Case in point: most CPAs cannot be called QuickBooks experts. They know how to pull reports out of QuickBooks to prepare your taxes, but the number of CPAs out there who would be able to fix a “broken” QuickBooks file is very small. That’s not their area of expertise.
Accounting knowledge
This one is a no-brainer and you have to test for it. However, you’ll be surprised how few candidates will fail in this dimension, because the accounting knowledge required to keep clean books is actually easy to acquire. This being said, let me stress that this holds true only if all you are looking for is a bookkeeper. If you are expecting your candidate to play a controller or CFO role, it’s a very different story, but then, the job description should not be “bookkeeper”.
Price
Like in any market, you get what you pay for. The lower the cost, the lower the expertise. If you plan on giving your bookkeeper primarily data entry tasks and you will be verifying every detail of his/her work on an on-going basis, you can afford to go lower on the price scale. However, if you expect your bookkeeper to be self-sufficient and you won’t have time to quality control the work, you will be forced to pay more. Keep in mind that the hourly rate is not necessarily a good representation of cost. Jane might charge twice the hourly rate as Joe, but if Jane works twice as fast as Joe and she provides higher quality work, you will end paying Jane less than Joe at the end of the month.
Availability
Supply and demand doesn’t only affect price. It affects availability as well. The better bookkeepers are busier. Make sure that the bookkeeper you hire still has available bandwidth for you and will be able to turn your work around quickly and be responsive to your questions during the week. That’s one of the key differences between independent bookkeepers and firms. When an independent bookkeeper is maxed out, there is no safety valve. You can’t move work around or assign different resources. You just have to wait for your turn.
Check references
Last but not the least, don’t skip on the reference checks. You’re about to give this bookkeeper a lot of sensitive financial information. Better be safe than sorry!

Thursday, January 19, 2012

Internal Controls Accounting Principles



The two most common causes of fraud in small businesses are when rogue employees or contractors write checks to themselves or deposit checks to their account instead of the company’s account. Those are very unsophisticated schemes and can easily be detected after the fact, but by the time you detect the fraud, the damage is already done. Very often these individuals go from paycheck to paycheck and spent your money in a hurry. You can’t get the money back. They are broke and you can only “punish” them through termination and prosecution. You get a sense of vindication, but the money is gone.
It is much better to prevent fraud in the first place and for such basic fraud, there are easy tricks. It all starts with what larger companies call “Internal Controls”. Essentially, any financial process that moves money around needs to involve at least 2 individuals checking on each other. When you apply this to a small business, it can be very basic, but still effective.
Guarding your stock of blank checks
Many small business owners feel that as long as they are the ones signing checks, all is safe. Not really. Banks do a very bad job at checking signatures. They can be easily forged. The signature is an effective tool to trace back the source of the fraud once the fraud has been detected, but by then, it’s already too late. The better approach is to control who has access to stocks of blank checks and how these blank checks are handed out.
The safest process is to have your bookkeeper prepare the checks in QuickBooks and mark them as “To be printed”. You, the owner, would then do the actual printing. In this scenario, you’re the only one with access to the stock of blank checks.
If you don’t have time to do the printing, you can delegate the printing to the bookkeeper as well, but you would hand-out only the exact number of blank checks needed and you would keep a log of the check numbers that you handed out. Essentially, avoid at all cost to have the blank check in a self-service mode. Checks need to be in a locked drawer with as few people having access to them as possible.
The panacea is to not have blank checks at all and to use online bill payment with rigorous approval workflows, but these techniques are a little bit more involved in term of setup.
Controlling the deposits
Let your bookkeeper or the individual acting as bookkeeper record the deposits in QuickBooks and prepare the deposit slips, but make sure that it is a different person who goes to the bank to make the deposits. Ideally it should be you, but if you don’t have time, separate the roles of preparing the deposits and making the deposits. Whomever makes the physical deposit needs to bring the deposit slip back and immediately hand it off to the person in charge of QuickBooks. This is of course not bullet proof, because the person making the actual deposit could still swap the accounts, but by enforcing the requirement of handing off the deposit slip on the way back to the office, you send a clear signal that this type of fraud will be caught almost in real time.
There are of course much more sophisticated ways of committing fraud, but by implementing the processes above, you will be preventing the two most basic and common fraud schemes. 

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