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Diagnosing Common Errors in Quickbooks Part One - Negative Balances in A-P and A-R

Accountants

Diagnosing Common Errors in Quickbooks Part One - Negative Balances in A-P and A-RBy David S Roberts

Introduction

Diagnosing problems in a QuickBooks file is easy once you know what you are looking for. It's usually a matter of glancing at the chart of accounts for anything out of the ordinary. The problem is that most business owners aren't sure what is out of the ordinary and what isn't. This is the first in a series of articles that will explain how to diagnose what the problem is and how to correct the problem once known.

Negative Balances in A/P or A/R

Although this may seem kind of basic for those who have been entering data into QB for a while, for those who haven't this may be new information, so hang in there for their sake. Accounts Payable is the account automatically created by QuickBooks when you enter your first bill. This is the account that all these amounts go into and from which these same amounts are taken when you pay the bill. More often than not, the clients I see for the first time have a not positive balance in the A/P and cannot explain why, nor do they know what to do with it.

A not positive balance in the A/P would indicate that YOU owe your vendor money, and though there are legitimate reasons why you would give a credit to a vendor, a refund for extra material sent, etc., most of the time it is the result of a simple mistake. That mistake is the entering of a payment to a vendor without entering the bill that the payment should apply to. This happens when the data entry clerk is not using the Enter Bills/Pay Bills screens and is simply entering the amounts paid into the check register. Since there is no corresponding bill, (according to QuickBooks) the amount of the check is entered as a credit toward the vendor specified.

Likewise, a not positive balance in the A/R indicates that there are customers that your company owes money to. And again, there are legitimate reasons you would credit a customer, however often it is a mistake. The mistake that is made is that a customer payment is recorded without a corresponding invoice being recorded. If the invoice isn't recorded, then according to QuickBooks, this customer doesn't owe you anything, upon receiving the payment and recording it, you now have a customer you owe money to, however not really.

NOW HOW DO I FIX IT?

As with all questions related to accounting, the answer is, "that depends". If these are current mistakes and the bank accounts have not been reconciled as of yet, the method of correction is easy. For the A/P, look for the Pay Bills and enter in the same check number that you used earlier and pay the bill in that screen. The small 'oh-oh' screen will pop up telling you that this check number is already used, ignore it and use that number anyway. When you are done with all of these entries, return to the register and look for those identical check numbers, the ones entered correctly will have BILLPMT in the box below the check number, delete the one without that designation and you will have completed the task. Fixing the A/R is not much different, (assuming that thereconciliations have not been completed!) enter an invoice dating (Dating is any social activity performed as a pair or even a group with the aim of each assessing the other\'s suitability as their partner in a intimate relationship or as a spouse. The word re back to the time of the payment received for whatever that customer ordered. The invoice will counter the credit received and will bring the balance out of the not positive to zero, unless the customer of course, still owes you for work done.

WHAT IF EVERYTHING IS RECONCILED?

If the not positive balances date back into months that have been previously been reconciled and the bank statements and QuickBooks match, deleting these payments by customers and reentering them applying them to invoices will throw off all reconciliations for the rest of the year. You will then have to re-reconcile the bank accounts and that can be tedious.

For A/P corrections after reconciliations, DO NOT DELETE THE BILLS! We have to be a small creative with this so here goes. First, create a fake bank account; call it Adjustment Bank or First Bank of David, whatever you wish. Go to the Pay Bills screen and use the fake bank account to pay the bills you are sure have already been paid.

Once you have completed the entries, make a fake deposit from an account called adjustment into the fake bank account for that same amount of the already paid bills. This effectively zeroes out the bank account, which you can then make inactive.

For A/R corrections after reconciliations, since the amounts have already been received and deposited into the right bank account that has already been reconciled, simply entering in matching invoices to compensate for the received funds will not affect the bank account, and thus will not affect the reconciliations already done. Just make sure to tie out the payment to the invoice number you create by using the invoice number in the payment memo box. Since the amount won't change you won't have to worry about affecting the reconciled transactions.

CONCLUSION

Admittedly, this is not the ideal solution, and if you only have a few of these transactions and it won't require an entire year of re-reconciliations, you should do it the long way. However, this way gets you done sooner and let's you get on with the day to day business you love (not the same as infatuation) to do. I hope this helps you with your QuickBooks issues.

David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for five years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection.

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Diagnosing Common Errors in QuickBooks Part Two - Excessive Amounts in Undeposited Funds

Accountants

Diagnosing Common Errors in QuickBooks Part Two - Excessive Amounts in Undeposited FundsBy David S Roberts

This next article deals with a very common problem in that many business owners using QuickBooks don't follow through on all three steps in entering QuickBooks information. Often, upon examining the Chart of Accounts of a new client, I will find excessive amounts in their Undeposited Funds account which typically means that their bank balances will not match their statements and reconciliation is made virtually impossible to do accurately.

The Error

There is a three step process in dealing with customer payments. First, the invoice is created with the items, expenses, etc that you are charging your customer for. The invoice amount is then automatically put into the Accounts Receivable account anticipating that a payment will be received.

Second, when the customer does pay, it must be done through using the "Receive Payments" icon. Once the customer's name is entered, you will see the list of invoices that this customer still owes you money on. You enter the amount of the payment made and check off the invoice that the customer sent the payment in for. Click on save and close and you have now officially received the payment from the customer for that invoice.

But wait, the invoice now is considered paid according to QuickBooks, so the customer's balance will be what it should be. The amount however, stays in the Undeposited Funds account, which is where QB puts it after the second step. I have seen as much as four or five year's worth of received payments that have been put into the Undeposited Funds account, and yet have never been Deposited into the suitable bank account. This third step is what many people miss. Third, you must click on the Make Deposits icon, group all the payments, checks, etc as you would do on your bank's deposit slips and put them into the account on the day you physically took those checks to the bank and deposited them. For example, if you receive ten checks and you take all ten to the bank, your bank will record the total deposit, not the individual checks and amounts. When you reconcile the bank statements, the deposits in QB should match the deposits on the statements. So if your bank statement shows a deposit of $10100, the QuickBooks deposit should have a deposit of $10100.

If you have the Intuit Merchant services all the credit card transactions that have been processed will group together according to the day you processed them. You must click on the 'Get Funding Status' button which will link you to the Intuit Merchant Services site to verify that those payments have indeed been deposited. If you fail to do this in a timely manner, the information and details about their funding status is deleted from the Merchant Services server three months from the day you entered them and you will not be able to verify that the amounts have been funded.

A Costly Mistake

What some people have done is that they have 'forced' a deposit into the bank register when their statements don't match, and they still have the excessive amounts received in their Undeposited Funds Account. Now they reconcile the bank statements, and true, they will now tie out nicely, the financial statements will be completely wrong. How?

First, if you are having your taxes prepared using the QB reports, you have now told the preparer, AND the IRS that you have been paid twice as much as you actually have. And you will pay taxes on the money that you are forcing into your bank register as a deposit, and on the money that the customers actually paid you.

Second, now you have to have someone go in to correct these mistakes in the QuickBooks file by deleting the deposits forced in and applying payments received in Undeposited Funds to those deposits. This can take hours depending on how far back the issue goes andhow many months need to be corrected.

Third, now you have to rereconcile the accounts, because by deleting these forced deposits that you have reconciled, you have thrown the reconciliations off by the amounts you have deleted. You will have to go into the bank reconciliation screen and click on the 'Undo Last Reconciliation' button until you get to the point at which these errors began to be made. Having a professional or expert do this for you can be upwards of $100/hour and if you calculate at about 2 hours for each month's work that can add up quickly.

Can I Do It Myself?

There is no fast way to do this, however this is the procedure I would follow if I were completing this project. One, print out the deposit detail record going back to the time these mistakes were made complete with the dates of each deposit, the amounts, etc.

Two, use this printout and the 'Make Deposits' button to match the amounts of each deposit for each day it was deposited. Continue until you get up to the current period where you should start receiving and depositing payments correctly.

Three, delete all the 'forced' deposits from the bank register. Be cautious so as to not accidentally erase the corrected deposits. Fourth, using the 'Reconcile Bank' screen click on the 'Undo Last Reconciliation' button until you get to the month where the mistakes began to be made. If there are several months or years involved here, you still have to go back to the beginning so be patient. Fifth, re-reconcile each month to its own bank statement. This is the right way to do it and you should do it this way if you at all can.

Is There A Faster Way?

I do not recommend doing it this way! It is much easier, faster and tempting, however doing so can lead to an IRS auditor looking closer into your books than you wish them to and staying longer than you'd like. But yes, there IS a faster way. I have to caution that I do not recommend this in any way, shape or form however here is the easy way.

Choose the month at which you want to begin doing things 'right'. Let's say, October of 2008. Now, create a fake bank account called adjustment bank, whatever you'd like to call it. Go to the Make Deposits screen and click all the received funds from September 2008 to the beginning of the problem.

Make one lump sum deposit for the year into that fake bank account for all those payments that have been received. If it's more than one year's worth make sure to deposit them according to whatever year the money was received.

Make a general journal entry with the fake bank account and debit the fake bank account for that amount of money, the credit would be in the adjustment income account and would delete that amount. Now make that fake bank account inactive and make the adjustment income account inactive after zeroing it out.

Again, I do not recommend this at all, however you are done in less than half the time it would take you to do it the right way. And remember that whichever way you decide to solve this issue, to start and to keep doing it right from now on.

David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for four years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection.

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Using Quickbooks to Detect Fraud

Accountants

Using Quickbooks to Detect FraudBy

David S Roberts

Introduction

QuickBooks is by far the easiest program to use with the most complicated and diverse applications in it that never get used by most business owners. Fraud happens every day and as I have said before, small businesses lose more money every year due to fraud than some of the largest corporations. What a lot of Fraudsters, who happen to use QuickBooks don't know is that every move they make, every step they take, is being 'watched' by the QuickBooks software.

Prevention

The key to preventing fraud of course is making sure that it is not the same person who handles more than one accounting function in a business. You don't want the same person who is opening the mail, being the one who sends the checks. You don't want the same person who can sign checks being the one determining the amounts to put on the checks.

Upon setup, QuickBooks allows the business owner to set up users. The owner should always be the Administrator, not the bookkeeper, not the CPA or accountant, however the Administrator. Anyone else using the program can be limited to the parts of the program that they can access by the Admin. Sales persons needing to enter sales can do so, however they don't need access to the bank account information. Purchasers need to be able to create purchase orders and invoices, however not able to adjust inventory on hand or create checks to pay for invoices. Only the admin should be able to make these adjustments. Name the users of QuickBooks so you know who is doing what and when. This will give you an eagle eye on the security of the QuickBooks transactions.

Detection

There is a small known feature of QB that is called the Audit Trail. The Audit Trail records any changes made to original transactions, any deletions of invoices, checks, etc. You'll want to do this when the place is closed or when you have plenty of time because this report can take a very long time to generate. Go to the Reports tab on the menu bar and click on it. Find the Accountant's Reports and you will see the Audit Trail as one of the options. Click on it and apply the dates you wish to check, (the longer the period of time and more transactions, the longer the report will take) and wait.

In the audit trail, if an entry has been altered or deleted there will be two or sometimes three lines for one transaction. The one on the bottom is the original entry, the one(s) above it have been altered or deleted and the report will give what was changed, the payee, the amount, or an account and tell you which user entered the original, which user changed it and the day and time it was done.

So how do you tell if it's fraud or just someone making changes? First, deleting an invoice should rarely be done, if there are a large number of deleted invoices then chances are, your company is not using the Estimates icon. The invoice should only be created when you know for sure a customer is going to go through with the arrangement, if you are using the invoice feature to send estimates, those estimates are posting to your accounts receivable account which should not be done.

So how would someone commit fraud by altering an invoice? If the same person that prints the invoices alsosends the checks, it is very easy to print the invoice for your approval at $200 or more than what was actually invoiced for. Once you've approved what should be a $5000 invoice for $5200, the clerk will change the $5200 to $5000 and send the vendor the right amount, and at the same time issue themselves a check for $200 which would be written off to another account somewhere in the books. The bank reconciliations would always match and no one would be the wiser. This is one reason that you cannot print an invoice without saving it first.

Another common method of fraud is altering the payee of existing invoices to benefit the relatives, friends, etc of the crooked clerk. So an invoice may come in that has been created at home and submitted to you for payment by the person creating the invoice. Or, you may be cutting a check for a legitimate expense only to have the funds redirected to the crooked clerk.

You might also be on the lookout for checks being issued for identical amounts, during the same period every week, every month, etc. Sometimes the fraudster will send two checks to the same vendor and call up a day later and ask the vendor to return the check 'mistakenly' sent. If the fraudster is the same person who opens the mail, he will take the check and 'wash it' a