Audience: 

This is the fifth of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This fifth post shows a sample Balance Sheet. Here is the basic structure of the financial statement with no accounts showing. Each account group will be presented individually culminating with a completed financial statement illustrating sample accounts

The statement can appear in two ways: Assets above Liabilities+Equity or Assets on the left side and Liabilities+Equity on the right hand side.

Assets

CURRENT ASSETS – These are assets that will get used up within one year
Cash – Bank: Checking Account, the most active account!
Cash – Savings: Savings Account, savings to be used up in one year
Accounts Receivable: The amount that you customers owe you (and you have invoiced them)
Prepaid Expense – Insurance: A year’s policy that was paid in one payment

LONG-TERM ASSETS – These are assets that will last longer than one year
Land: Investment in land that will take more than 1 year to pay off
Building: Investment in building(s) that will take more than 1 year to pay off
Computers: Equipment that will be of use for more than one year
Depreciation: A tax concept that long-term assets will last only a certain number of years. This needs more explanation in a later post!

Liabilities

CURRENT LIABILITIES – These are DEBTS that will get paid off within one year
Accounts Payable: What you owe your vendors this year (you will have it paid off shortly!)
Loans Payable: What you owe to banks and other lenders that you will pay off within one year
Deferred Revenue: Money a client paid you have not earned yet for services in the future, like a one year subscription.
Accrued Expense: Money you paid a vendor for services/products in the future, like a one year subscription.

LONG-TERM LIABILITIES – These are DEBTS that will last longer than one year to pay off
Mortgage: Loan to buy real estate that will take more than 1 year to pay off
Long-Term Loans: Debt from financial institutions that will take more than 1 year to pay off
EIDL Payable: Government Loan from the COVID period to help businesses survive

Equity

FIRST – Small Businesses do not sell stock. OWNERS contribute and draw funds, they do not buy or sell stock or any type
Owner’s Accounts: A generic account to record how much an owner contributes or takes from the business
Owner’s Contributions: A specific Owner Equity account showing how much an owner invested/paid in into the business
Owner’s Draws: A specific Owner Equity account showing how much an owner has take out/withdrawn from the business
NOTE: Any personal payment or deposit made to a business by the owner gets recorded in Equity
Retained Earnings: What the business has earned during the year and this comes from the Income Statement. It is the result of: Total Income Less Total Expenses during the year.

Sample Balance Sheet:

Here is the Balance Sheet completed. You will see that total of ASSETS = LIABILITIES + EQUITY

Remember:

The Balance Sheet combines what you own (Assets), what you owe (Liabilities), and what you actually own in the company (Equity) in one financial statement (report): The Balance Sheet.  There is a lot of valuable information that you, the owner, as well as outside parties such as banks, vendors, and others, can learn from this report.   

Basic Balance Sheet Formula:   

Assets  =  Liabilities + Owner’s (Partners’) Equity

What your company is worth Formula:

Assets – Liabilities  =  Owner’s (Partners’) Equity (= What your company is worth)

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

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Welcome to the first of my RMOHC PRACTICAL Articles here in the RMOHC.com Accounting Empowerment Blog. 

The goal of RMOHC is to have you feel more empowered to do your work better, using the tools you have, than when you first opened the site.

Situation: 

The site says, “Download data” and you do.  You see the download notification at the bottom LH side of your monitor and your data is waiting there.

You open the download, and up pops a new tab on what appears to be a spreadsheet so that you can extract data and work on your project.  You label that tab, “TAB 1”

Done!  Great work!  Tab 1 has the original information.  You extract data and dump it into a new tab and call it, Tab 2.  You finish your work and time to close it up.  The last thing you check is something on Tab 1, the original information.You save it cruising through all the pop-up closing messages (notifications/warnings) and close it.  This is what you do everyday. 

The next day, you want to review your work, and when you open it, you only have one tab of information, Tab1.  Tab 2 is missing.  All your work, and the whole Tab 2 is missing!!  What happened??

You were working on a .CSV file

You saved what looked like an Excel file as a MicroSoft_Excel_CSV file.  Easy to miss.

It is also easy to miss the warning message that comes up:

We are all experienced with spreadsheets and have begun to ignore messages when we close files.  [“Danger Will Robinson, Danger!!”]

You clicked “OK” thinking you were saving the whole spreadsheet, and you were only saving the active sheet, again, the sheet you saw on the screen.  Let’s look at what .CSV files are and what to do with them:

WHAT IS A . CSV FILE?

Each Line = 1 record

Each Record = 1 or more fields, SEPARATED BY COMMAS
                      hence: Comma Separated Value (CSV)

Each line will have the same number of fields:

            And it looks like this (and that looks A LOT like a spreadsheet!!):

Data Type = Tabular, i.e. Numbers and Text (resembles a single page spreadsheet)

Default Download Appication = Your spreadsheet application (for me it is MSExcel)

Format = Plain Text (this allowed files to be downloaded anywhere, on any computer)

What is Saved = .CSV files will save only the active page, the page you see on the screen

PREVENTION:

2. IMMEDIATELY SAVE THE FILE AS AN EXCEL SHEET:  As a matter of best practices,

    if you see a file is a .CSV file, do not do any work on the sheet and save it first in its

    original form as an .XLSX type file

    File name:   Put the file name [Look for File Naming post]
    Save as type: Choose “Excel Workbooks (*.xlsx)”

You don’t have to save the original .CSV file if you prefer not to.  You will find it is in your download file on the (C:\downloads) so that you can always find it there, if necessary.

Then begin work, extract data, link tabs, etc., as you normally would.

When it is time to close the file, just keep an eye on the extension (the .XXX at the end of the file name) and verify it does not read:  .CSV

Look for more articles here, or teasers for articles on LinkedIn.

If there is a topic you would like me to discuss, email me at info@rmohc.com.

SOCIAL DISTANCING:
With the COVID-19 outbreak, social distancing is becoming the norm.  Let’s try to prevent/slow the spread of the virus by keeping six feet between me and you.

CYBER DISTANCING:
How about keeping “6 feet” from cyber activities that can harm you and your computer.

SITUATION: Natural disasters are a great time for cyber criminals to strike.
How are they striking?

1. Sending Malware – software to hurt or destroy your computer/cyber ability.
2. Phishing – sending emails trying to get you to give out personal information*
3. SMiShing – Phishing in the SMS format, i.e. texting you for your personal information*
(hence: SMiShing)
4. Spoofing – Disguising themselves as a legitimate source trying to get information, i.e. pretending to be a federal agency

*Personal Information:
financial data, SS#, address, telephone, bank account, passwords, etc.

What to do?
1. Unsolicited emails: Delete rather than open.
2. Don’t click links:     From unknown or unverified email addresses.
3. Up to date?            Verify Anti-Malware & Anti-Virus software are up to date.

More to come!
Info taken from an excellent Association of Certified Fraud Examiners provided by Jason Zirkle, CFE on 3/26/20.

Cyber criminals messed up your files?  Please feel free to email me (info@rmohc.com) to schedule a free initial consultation (in person or Zoom).

R. M. O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup for commercial and government contract clients, fraud prevention, and training services. RMOHC keeps clients profitable, legal, and compliant.

OPERATIONAL ACCOUNTANT AND VICTOR, THE TALE OF THE COMMINGLER 

Victor was a businessman who had an S-Corporation Business.  He took his finances to a tax accountant to do his personal and business returns.

Turns out, he used one QuickBooks account to track both his personal and business expenses (cuidado!).  Result?  The tax accountant could not separate business from the personal costs and could not create Victor’s returns.  What is Victor to do???  [melodramatic music in the background]

This is a task for the OPERATIONAL ACCOUNTANT!!

“Faster than cash from an ATM,
“More powerful than a profitable financial statement,
“Able to complete complex transactions in a single journal entry, its….
                                    OPERATIONAL ACCOUNTANT!!!

Jimmy Tolsen from the Daily Planet interviewed OPERATIONAL ACCOUNTANT after he saved the day, no, I mean, after he saved the tax returns:

Jimmy:  How did you fix poor Victor’s financial and tax predicament, OPERATIONAL ACCOUNTANT?

OPERATIONAL ACCOUNTANT (OpAcc):  I converted 12 months of statements from 6 different accounts…

Jimmy:  …you mean, you had to work from 72 statements???

OpAcc:  Yes Jimmy, on the face of it, it was intimidating.  I was brave.  I uploaded thousands of transactions resulting in 2 clean QuickBooks accounts, one for the business account and one for the personal account.

Jimmy:  And you were done, right?

OpAcc:  No Jimmy, a more menacing problem lurked behind all those numbers.  You see, Victor used his business accounts to pay for personal things, and his personal accounts to pay for business things.

Jimmy:  Oh…my…. gawd!!  Are you saying he comm…?

OpAcc:  Yes Jimmy, he commingled his S-Corp business and personal finances!!  This could threaten his ability to remain an S-Corporation.  I had to figure who paid whom what for what why and how.

Jimmy:  Wha……?

OpAcc:  He used personal funds to pay business expenses, and business funds for personal expenses.  Be fearless Jimmy, because there is a day in every business’s life when the business has to account for intercompany transfers.  There were scores of them.  Ultimately, between the two accounts, they balanced, and the tax accountant had clean financial statements to create his returns!

Jimmy:  Wow, OPERATIONAL ACCOUNTANT!!  Who ever said that accounting wasn’t exciting!!!

OpAcc: [mumbling] …. actually, just about everybody….

Jimmy:  So, there you have it, citizens of Metropolis.  Never commingle your business and personal finances!  Do you have any final words for us Operational Accountant?

OpAcc:  Yes, Jimmy, and thank you for covering this.  Remember:

1. If you have more than one business, you must keep a complete and separate set of books and records for each business. Thus, spake the IRS on page 5 of its delightful read called “Publication 583”. (https://www.irs.gov/pub/irs-pdf/p583.pdf)
2. This type of accounting rebuilding work can be expensive. It cost Victor a European vacation or 2.

As my friend the Smokey the Firehouse Accountant says:
“Only YOU can prevent commingling of finances:
Use separate accounting software accounts.”

QuickBooks (QB) is a great solution to keeping your finances separated.  OPERATIONAL ACCOUNTANT uses QB as his personal and business accounting software and with his clients.  He gets no kickbacks from promoting QuickBooks; he just thinks QuickBooks is a great solution for small businesses.

For QuickBooks Online, check out (https://quickbooks.intuit.com/) for subscription prices.

For QuickBooks Desktop, Amazon sells the software (computer resident software).
Add a subscription to QBOX (https://www.qboxplus.com/) for seamless cloud remote access.

 

Separate, don’t commingle, and stay legal!

Do your business and personal finances need separating or simply cleaning?
Please feel free to email me (info@rmohc.com) to schedule a free initial consultation.

 

R. Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

Here is a fun start to 2020!  Happy New Year to everyone!

 

Warning:  Be very careful with calls from “[COMPANY] Support.”  They will tell you about a virus they need to fix.  They only want to break into your computer. 

I was driving when phone rang, and I couldn’t research the caller.  Here are two solutions to consider (which you probably know already!):

Solution if at computer:
Do not give any information.  Ask them for the [COMPANY] Support URL.  Hold them to it if they don’t hang up.  They will try to avoid the question.  Put only the name in, not the “.com”. and see what comes up.  Check their telephone #.  If you see “scam” anywhere, end the call.

Solution while driving:
Engage the person and ask all sorts of palsy questions, “Where are you from?”, “How long are you with Apple?”, “Where are you based?”

Listen to the tone, you will hear if they are there to serve or scam.  You can have fun at their expense.  Then hang up.

Best Solution:  DON’T ANSWER!

---

Here is my story about holding a scammer verbally hostage while I drove home:

“I had a ‘[COMPANY] Service’ call come in while driving home a few days ago.  I took the call.  He warned me about a virus that he had to check or something.  Asked me how many computers and other devices I had, and I started chatting with him telling him saying I had to finish driving home before I could tell him anything.  

“[Poor scammer, stuck talking to me as I drive through neighborhoods…]
His reluctance to engage me started sending up red flags.  He tried to tell me that he was from the Netherlands and I said, ‘so when did you move there from Pakistan, because that’s your accent, right?’ [BTW, I am a linguist…] […truly!]

 “[Poor, poor scammer…still driving]
“So my chatting began in earnest.  I tried to find out where he lived in the Netherlands, did he like Speculoos cookies (serious yumm!), how long he had been there, why he chose the Netherlands, just being 100% typical ME(!!).  So, I get home, and I tell him I am excited and ask him for the website so I could verify where he was calling from.  

 “[Poor, poor, poor scammer.]
“‘SCAM!!’ came up all across the computer when I entered in his telephone number, and when I entered typed in the name of the [COMPANY] service he “represented”, it said ‘SCAM!!’ too.  Then I asked him whom did he really work for because everything turned up ‘SCAM!!’, and whooda thunk, he hung up on me!

 “Poor scammer.  I had fun.  He’s not in the Netherlands (Toronto, actually, researched the number!) (…Toronto’s not in the Netherlands, is it?) (It isn’t Toronto, Ontario, Netherlands???).  Doesn’t speak Dutch.  Doesn’t know what Speculoos cookies are and had to talk to me all the way home.  Not knowing Speculoos was truly the saddest thing!

Poor, poor scammer.  He called the absolute wrong American! “ 

1. Keep your information to yourself.
2. If driving, keep a shallow newsy conversation going if you are up to it
3. Eat Speculoos cookies (I get nothing out of this, I just love them!)
4. Watch this to see what you can do with scammers:

https://www.youtube.com/watch?v=_QdPW8JrYzQ

 

Been scammed and need to rebuild your files?  Please feel free to email me (info@rmohc.com) to schedule a free initial consultation (remote is not a problem).

Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

QBOX!

The QBDesktop has an amazing member supporting its team: QBOX!

It gives CLOUD access to QBDesktop like never before, and at a rate like never before!

As an Operational Accountant, my clients and I enjoy it ease of use, no matter remote we are from each other. It holds up to 10 gigs for .QBW, .XLSX, .DOCX, files and much much more.

And the connection is seamless!

QBox-Desktop-Operational Accountant Quiz       [with answers]
✔Do you LOVE your QB DESKTOP?                      [answer: I sure do!]
✔Do you want to keep its awesome features?         [answer: Absolutely!]
✔Do you want to work with an awesome, and humble, Operational Accountant
throughout the year (moi!)?!                                      [answer: That’s obvious!]

 

If you answered all three questions correctly, you win a free consultation below.

Write me at info@rmohc.com and enter “QBox Consultation” in the subject line.

 

Offer: Set you up in QBOX and continue the Joy of QBD!

$100 through 1/1/2020.

 

My offer and my accounting are as serious as my humor is bad. I make you feel good about your numbers. Now, I can do it helping you with QBox…even if you work another accountant!

 

R. Michael O’Hanlan Consulting (RMOHC) is an accounting systems consulting firm based in the Washington, DC area. Michael O’Hanlan is a Certified Fraud Examiner. RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services.

Hi LinkedIn readers! Let’s talk about a Fraud affecting Main Street Businesses. Are you a small business that is not publicly traded and you have a staff of 1-20? Then you are a Main Street Business.

Main Street Business Fraud stems from the Opportunity side of the Fraud Triangle. Opportunity means what aspects in the corporate culture helped create the possibility for fraud to happen, and/or in what aspects of the corporate culture did the Fraudster find Opportunity to commit fraud?
Defrauded business owners are indeed victims, but it takes to defraud, uh, I mean, tango. Let’s look at how business owners almost beg to be defrauded. Fill in your answers to each of these questions:

1. Doesn’t know anything about running a business or accounting…AND DOES NOT WANT TO LEARN.
Fill in what opportunity the Fraudster sees: _________________________________________________

2. S/He has 3 PhD’s, a JD, an MD, DDS or some other degree of higher learning and it is BELOW them to look at something as mundane as accounting, or god forbid, bookkeeping!
Fill in what opportunity the Fraudster sees: _________________________________________________

3. I don’t have time to spend on all this accounting and finance stuff, that is why I hire others to do it. I have more important things to do! Let them handle it.
Fill in what opportunity the Fraudster sees: _________________________________________________

4. My mom, my son, my husband, my best friend, my lover, etc. does my books, and I trust them implicitly! They would never steal from me!
Fill in what opportunity the Fraudster sees: _________________________________________________

5. I inherited the company. It really is not my job, even if I am the owner now. So leave me alone!
Fill in what opportunity the Fraudster sees: _________________________________________________

 

Here is the $65,000 question for you, Mr./Ms. Mainstreet Business Owner:

1. Whose business is this really, yours or someone else’s?

2. Who is ultimately responsible for the entire business?

3. Who signs the tax returns?

4. If you were not a Main Street Business and sold stock, who is subject to Sarbanes Oxley requirements?

Email me if you don’t know the answers!

Reflections:
1. John runs a plumbing company. Until he caught onto my beloved Fraudster/Felon Diana, he could not be bothered with accounting or running the company. And she ran away with the $263,000.

2. Jane, an Oral Surgeon never wanted to look at her books. That was her Administrative Assistant’s job and below the lofty activities of this this DDS. Well this Admin needed to get a broken heater in her home fixed but had to be at work. The Admin used the DDS’s account to cover the HVAC. Then she used it again, and again, until the DDS paid for her new roof, and ultimately, a new BMW. Jane is out of business. Admin has a spiffy car….

3. Ezra had a very busy law practice and almost always in court litigating all the time. The clerk who entered retainer fees into his IOLTA account began to “tithing to herself 10%” these retainer deposits. A client filed a complaint with the VA Bar about missing funds. Ezra no longer practices law.

4. Christof’s long-time friend worked for him in his repair business. Christof loved and trusted all his workers. The entire company used one username+password to access QuickBooks. His friend printed out $200 invoices for customers paying cash, reprinted the same invoice for $100, and pocketed the difference. His friend’s theft cannot be traced because using only one password prevented tracing.

5. Jacquie, inherited the company, and still says “I don’t want to do it!” But the company is hers. Most businesses owners don’t want to do the finances, but finances are your business’s “spinach.” Learn to eat it, learn to like it, and your business can grow strong like Popeye! Hate it and risk losing everything.

RED FLAGS:

• Is the marriage on the skids, and both still involved in the business?
• Do you have shady siblings?
• Did Dad get diagnosed with cancer and didn’t tell you; he only took $$ to pay for chemo?

RMOHC and the business owners:
Do you resemble any of these 5 characters? If so, we need to talk soon.
RMOHC Clients: 1. John, 3. Ezra, and 4. Christof.
John got Diana convicted. He is still in business and expanding.
Ezra did not want to put the time into the IOLTA account, and I lost track of him (tends bar?).
Christof enacted a new internal controls system RMOHC developed and is thriving.

Do you resemble John, Jane, Bob, Christof, or Jacquie?
    -Definitely contact me.

Are your finances funky from “those you trust” helping you? Contact me immediately!

Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

Hi LinkedIn readers!  Let’s first talk about the concept of Main Street Fraud. 

When you study accounting, your examples present large corporations that have limitless staff to divide up accounting processes (i.e. segregation of duties), and limitless funds for the costs to use these systems.  They have fully staffed Accounting and Human Resources Departments so that the class can focus ONLY on the accounting issues.  The companies are large, perpetually profitable, publicly traded companies.

In real life, the fraud I deal with involves companies that are small, no, tiny: 1-15 people.  There is rarely any Accounting Department for keeping the books, and usually no Human Resources Department for on-boarding.  And they use QuickBooks, if any software at all.

A respected Fraud Examiner and Presenter, Kelly Paxton (of “Pink Collar Crime” fame), taught me a great term:  Main Street Fraud.  It refers to the fraud issues that affect smaller companies we find on Main Street, in Downtown, USA.  Main Street Fraud happens way more often, it doesn’t make the headlines.  It is not glamorous.  Main Street Fraud should be a regular article appearing in the ACFE journal “FRAUD” and feature Main Street Fraud Examiners in action!   [hey ACFE:  HINT!]

My beloved fraudster, Diana, worked for a small plumbing company.  She defrauded her employer out of $263,000.  They had an employee handbook, but no internal controls.  Her employer did prosecute, and she was found guilty of one felony count.

Prosecution is often costly, professionally embarrassing, time consuming, and frequently not worth it to the victimized companies.  But this is where the fraud seems to happen most often.  The focus of my writing is aimed at Main Street Businesses.  My goal is to give them ways to prevent other Diana’s from harming you and your businesses.  The victim of this article, a Main Street Business is really challenged if he wants to prosecute his fraudster, and you will see why very quickly.
So, I am starting with basics: usernames and password.

The Case of the Single Username & Password:

I had a recent client that brought me in for an embezzlement engagement.  As I interviewed him, it turns out that an employee/friend of his (of 15-20 years!) had been embezzling funds for almost as many years as they had been friends.  Embezzler earned the owner’s trust and took advantage of him.  When the owner discovered the embezzlement, he fired the thief.
How did the embezzler do it, and how did he get away with it?  Here was his process:
1. He went into QuickBooks
2. Printed out an invoice for a customer for $200
3. Then reprinted that same invoice for $100
4, Gave the customer the $200 invoice which s/he paid in cash
5. Turned in the $100 invoice to the company cashier with $100 in cash
6. And pocketed the $100 difference.

RMOHC: “Did you look into QuickBooks to trace what happened.”

Client: “You won’t find anything.”

RMOHC: “Why not?  Who has access to QuickBooks?”

Client: “Everyone, we all share the same username and password.”

RMOHC: “THE SAME?  Doesn’t everyone have their own username and password?”

Client: “No.  Only one came with QuickBooks, so we were stuck with using what they provided.  Besides, we only use QuickBooks track the invoices.  The CPA does all the rest, so we don’t need more, do we?”  [go ahead and gasp!]

Simple story short.  The Client got ripped off for who knows how many years, because the fraudster used the company-wide username and password to get into QuickBooks.  There was no way to identify the embezzler’s access vs. the owner’s access, nor was there any trail to follow.    

My Asset Misappropriation Engagement suddenly became an Internal Controls System Setup & Implementation Engagement.  You know what usernames & passwords are but consider these points:

USERNAMES are:
1. …key to keeping your financial data safe (and reduces “Opportunity” in the Fraud Triangle).
2. …means to limit who can get access to what in QuickBooks and more.
3. …great deterrents to fraud, because an audit trail is created based on the username.
4. …wonderful tools to help the segregate financial duties.
5. …NOT HARD to set up.  If you need help with them, I can help you!! [note the blatant self-promotion!]

PASSWORDS are:
1. Easy to set up for each user, and then the user can change it to something personal
2. Best if you avoid the common mistake of using: “password” or “123456”, or some other common pattern.  These are easily hacked.

TAKE AWAY:  NEVER SHARE A USERNAME AND NEVER SHARE A PASSWORD!

Contact RMOHC to help you work with usernames and passwords across your entire company!  Click here: (info@rmohc.com) to schedule a free initial consultation.

Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

I want to spend some time discussing checks and electronic payments and how fraudsters use them to steal money from you and your business.  I will risk saying that in our personal lives, checks are quickly disappearing.  In business, however, they are still an integral part of conducting business.

I know you are wondering, what is a check?

Basically:  A check is a piece of paper that you give to someone, on which you have written an amount of money that you authorize the bank to pay that person.  It is as simple as that.

Let’s dive into it more! 
Checks defined:  Checks are spelled out in Article 3 of the Uniform Commercial Code (UCC) which was published in 1952 (https://www.law.cornell.edu/ucc/3).  Checks are one of 4 types of what they call commercial paper.

Boring stuff:
Commercial paper is an…:
1. …unsecured promissory note…:  you don’t have to secure it, i.e. you need not attach anything of value to it to back it up, like your bass oboe, or your Heckelphone, “Back up” means that you give the piece of paper something of value to show the amount is worth something

In comparison, the loan for your villa by the Seed Vault in Svalbard, Norway had to be secured so that if you became a deadbeat and didn’t pay your mortgage, they would take your fleet of 1962 Citroën DS cars and the 47 M26 Pershing tanks for payment which you used as collateral on the property.  It secured payment to your lender.  A check doesn’t need to do that.

2. …having a fixed maturity of not more than 270 days. (read: you can’t cash them after that time) Now, if you didn’t realize it, you have 270 days to cash all your checks, as per the UCC!
Then again, if you are holding checks longer than that…why???

Uniform Commercial Code (UCC)(https://www.law.cornell.edu/ucc)
The UCC was first published in 1952 to harmonize laws of sales and commercial transactions across all 50 states, the District of Columbia and the US Territories.  This begs musical analogies, so I will….  Before 1952, the laws were different, and if you tried to pay for something across state borders, you could run into trouble because everyone had different laws.  Different laws = not in harmony.

This is like Florence Foster Jenkins in a church choir trying to out sing the rest of the choir (check out https://en.wikipedia.org/wiki/Florence_Foster_Jenkins).  The UCC is the choir director that established rules for blending in and held Florence to them (watch the movie “Florence Foster Jenkins” and you will understand).

Basically, it is a payment backed by nothing that will be worthless in 270 days!  Go figure….

Now you are wondering, what gives it value?
Originally, there were only three parts of a check that made them legally binding (~a contract):
1. “Pay to the Order of”: This tells the bank to whom to pay the funds.
2. Amount (written out, i.e. “Fifteen,” not “15”):  It tells the bank how much to pay out.
Writing out the numbers reduces fraud risk because written out numbers are not easily altered.
3. Signature:  This is your authorization giving the bank permission to give out the money.  Fact is, a check is a type of a contract, and your signature executes that contract!

Did you know that…:
1. …the DATE is not legally binding?  If you post-date a check, that check can be cashed before the date and you cannot stop it from happening!
[yikes, don’t try post-dating!  Date people, they’re more fun!]

2. …the amount, written in numbers, is not legally binding?  Numbers can be altered very easily and so are not considered legally binding, only the numbers written in words.  The written word supersedes digits.  They are not trying to see if you can spell numbers in English….

3. Memo – It just provides fun information. [i.e. “memo: _prot. shakes for pet aardvarks_”].

So where can fraud come into play with checks??

Everywhere!  Here are fraud issues I want you to consider:
1. Who stores the blank checks?
Q: Who has custody [who holds] of the check stock?
A: The fewer the better.  In a “Main Street Business” it should be 1 person, max 2.

2. Who has access to the checks?
Q: Can anyone get a blank check if they want one?
A: Again, the fewer the better.  In a “Main Street Business” it should be 1 person, max 2.

3. Who can write checks?
Q: Can anyone get a blank check and fill it out?
A: Again, the fewer the better.  In a “Main Street Business” it should be 1 person, max 2.

4. Where are all the checks?  Those used, not used, voided, stolen, forged, manipulated, etc.?
Q: How do you account for the checks you used?  Does the bank return them?
A1: If the bank returns them, all used checks should be locked away and a register of each one and how it was used (cleared, voided, stolen, forged, manipulated, etc.)
A2. If the bank does not return them, you should have a register of each one and how it was used (cleared, voided, stolen, forged, manipulated, etc.).

5. Who can sign checks?
Q: Who in the company has the right, power, ability, etc. to sign a check and spend the company’s money?
A: Again, the fewer the better.  In a “Main Street Business” it should be 1 person, max 2.

6. Is the check altered in any way?
Q: In the returned copy of the check, or the copy of the check on the statement, did you look to see if it was altered in any way?
A: If yes, contact the bank immediately;  if no, not to worry!

IMPORTANT NOTE:  This is why you should look at your bank statement and reconcile your accounts each month.

7. What did my favorite gal felon Diana do with checks???
a. She was the only one who had access to the checks (“…she had sole custody of them.”) – could do what she wanted with them
b. She (and the owner) could sign them and make electronic payments too – her company’s money was in her hands
c. She received the bank statements and could both hide returned checks that were returned, and hide statements, where the checks were copied on them
d. She had sole access to QuickBooks and was the only one who could and the only one who knew how to reconcile statements… but never did.
e. She kept the owner as much in the dark as possible so she could get away with all her embezzling
f. She did much more too!

Do you need help accounting for all your corporate checks?  Click here: (info@rmohc.com) to schedule a free initial consultation.

 

R. M. O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

 

SAVE TIME & MONEY WITH BANK FEEDS

SITUATION:  The Bank Feeds in both QBO and QBD (Desktop) download the same information you get on your bank statement.  These generally are:
Date
Number
Description
Amount

QuickBooks will assign these to:
Date
Number
MEMO (not name)
Amount

PROBLEM:
QBO and QBD relies on NAMES, not MEMOS to organize Vendor, Customer, Employee, and Other (as you have created) transactions.

When you accept a transaction without filling in/populating the PAYEE field, you are leaving out a NAME.  If you go back to verify you paid Vendor X  for an invoice based on accepting the bank feed, you may not see it.

SOLUTION:
With every payment transaction, ALWAYS fill in the PAYEE  field before accepting the transaction.

1. You usually see the Payee Name in the Memo Line.  Type that in the PAYEE  field.
2. Click on the Rules Tab, and make a rule to make accepting bank fees more smoothly.

QBO & QBD will gradually develop a set of Rules  for how to auto-fill the payee field.  If you don’t monitor it, you might find all your transactions going to Payee: Wendy’s  Account:  Pool Supplies.  Make rules such as:
If Memo Contains “Sunoco”
Set Payee to “Sunoco”
…you will not have 40 Sunoco Vendors (Sunoco 4567, Sunoco 4609, Sunoco 1590, etc.).  Rules, that is another blog post to come.

SAVINGS AND BENEFITS:
Savings – you will not have to pay ABC hourly rates (ABC = Accountants, Bookkeepers, and CPAs) to enter in all the names so they can do any type of research or analysis.
Benefits – you will develop a system of rules so that your bank feeds will be properly accounted for in QB.

PREVENTION:
QBD
-Go into Reports/ Custom/ Transaction and run a report for ALL dates
-Look in all Bank and Credit Card accounts
-If the NAME field is blank, open the transaction and choose a name of a vendor, customer, employee, or other.
-Save and Close the transaction

QBO
-Run a “Transaction by Date” report for ALL dates.
-Look in all Bank and Credit Card accounts.
-If the NAME field is blank, open the transaction and choose a name of a vendor, customer, employee, or other.
-Save and Close the transaction