Payroll is a repetitive, data intensive, complicated and just not a lot of fun.
Owners and managers tend to delegate as much of the task as possible and let someone else take care of payroll.
Owners and managers tend to, if anything, review totals and check on payroll taxes. Some do not do that on a regular basis.
There are a number of ways people can steal during the payroll function. Some in-depth reviews, at least occasionally, may deter theft.
SUBSTACK POST
https://tomealey.substack.com/publish/post/151289135
It can't happen here.
Theft and embezzlement cannot happen here.
I (CEO) know this because ________________________.
It CAN happen here.
Following on the blog will be a series on preventing embezzlement.
Your business office receives an email with a request for E-payment, and links are provided.
The name and amount look legitimate (either a regular vendor or for goods/services you would normally use).
So Accounts Payable personnel pay the invoice, and you have now lost $xxxxx to scammers.
Check, recheck and double check. Use the old fashioned telephone if necessary. Do document matching.
The federal Equal Employment Opportunity Commission has published a comprehensive guideline paper on harassment issues in the workplace.
https://www.eeoc.gov/laws/guidance/enforcement-guidance-harassment-workplace
Our commentary to follow.
What the most complex regulatory issues faced by small business?
Employment regulations.
Federal and state employment regulations. And in a some cases city regulations.
Your business lawyer and your public accountant (CPA/EA) can provide some information and support, also your local business chamber or association.
We will follow with a series on employment regulations.
Of late we are seeing layoffs and downsizing in several sectors of the economy.
This is not a recession, the overall job market is still doing well (and we hope it stays that way).
Mass layoffs are sometimes necessary, although we wonder why situations deteriorate to this point. Not all of the layoffs are in floundering companies.
Does anyone considering the longer term impacts on morale and retention? Does not seem so.
Will employees be as loyal? Maybe not.
Employees can handle the truth.
Based on my 45 years of varied experiences employees can handle the truth.
What they do not like is BS, or the old soft sell (trimming the truth), and the real truth eventually leaks out anyway.
Some business matters must be kept in the executive offices or among the owners, but most business matters become obvious to the employees, especially matters the employees care about, like compensation.
When and how you keep employees informed depends on the type of information, the timing of the information and the critical-or-not nature of the information.
I spend a lot of time with young people.
Many are doing after school and summer jobs. Some are starting adult work.
Biggest complaint?
Supervisors.
Poorly trained, volatile, inconsistent supervisors.
And what contributes most to turnover? Apparently......
Supervisors.
Being on the job the longest does not make one qualified to be a supervisor.
Train, train and retrain.
Supervise the supervisors.
Many employers prefer "employment-at-will" (EAW) which allows employers to lay-off or fire employees (with no contract or union) without cause and without notice.
(Subject to federal and state civil rights regulations.)
But many employers expect a two week or more notice from employees when they resign or just plain quit.
Employers cannot have it both ways. Employers can request a two week notice but generally cannot require a two week notice.
A good relationship with an experienced employment lawyer is a wise investment.
Always be up-to-date with federal and state regulations (and in some cases city regulations).
More to follow. This is not legal advice.
Loyalty is an ongoing discussion.
Employers want loyalty from employees.
Employee expect some level of loyalty from employers.
Balancing the equation is very very difficult.
Many businesses, especially in small retail, have video camera coverage.
Many, but not all.
Question: Is the risk environment such that every business with live customers and/or employees need video cameras?
Offices? Warehouses? Construction sites? Every place?
We are starting to think the answer is yes.
If you have a business telephone, answer the damn phone.
If you use voicemail, listen to the messages and promptly return the calls.
If you use email read the emails and answer the emails that require an answer. Promptly.
Just answer the damn phone!!!
(If you cannot tell I am a frustrated consumer at the moment!)
Internal controls require regular reviews by a person not involved in originating or recording the transaction.
Boring and time consuming? yes.
Monthly reviews for the small business should include:
Bank account reconciliations, including e-payments
Debit and credit card reviews (these appear to be the most frequent means of employee theft)
Account receivable reconciliation (beginning + charges - collections = ending)
Payroll (every pay period and month end)
Inventory inputs and outputs
Others depending on the business model.
Not enough time? Somebody has to make time.
Now is the time to start preparing for your 2024 year-end tax filings!
Huh?
If you have a business, this is the time to update and improve your company bookkeeping. This will 1) save you money at year end 2) improve accuracy and 3) provide a base for better business analytics.
For you individual returns this is the time to improve your filing system and to make a checklist of items, using the 2023 return as a starting point.
Next February is the wrong time to start preparing for the 2024 tax returns.
A small business near our house has a prominently displayed digital sign.
Some of the information is about services and prices...... but
Much of the information is very bitter, nasty, bigoted, sometimes outright false political commentary.
Good or bad for business?
We do not know, but we would not patronize this business.
So is mixing politics and business a good idea?
In our opinion, usually, no.
But the owner's choice.
Accurate expense classification are critical for 1) accurate financial statements, 2) accurate tax returns and 3) accurate analytics.
This starts with a chart of account that is well constructed and has enough account classifications (but not too many).
Beyond that, the day-to-day coding and classification of payables and disbursements is critical to accuracy.
Design and operational accuracy are both critical.
Capturing every revenue transaction promptly and accuratelyis a critical phase of bookkeeping.
First it is critical to capture the revenue. Second this will allow the business to tie-out cash and receivables accurately.
If you cannot tie-out cash and receivables your internal control system is inadequate.
Whatever system you use, it must be customized to your type of business and your specific circumstances.
Cash** only
Cash and billing on account (generating receivables)
Billing accounts only (generating receivables)
Prepayments / retainers
Single transactions (e.g., car dealers) per customer
Consult your accounting and tax advisors, and possibly your IT advisors, for assistance with customizing and monitoring your revenue accounting.
** "cash" meaning currency, checks, debit and credit cards, portal sales (Pay Pal), wire transfers and any other financial transfer means
The chart of accounts is a simple yet critical part of the bookkeeping system.
Simple - a list of the accounts you will use in the balance sheet and the incone statement.
Not so simple - the chart must be customized to fit your organization - not too many accounts, not too few accounts with accurate names and in a logical sequence.
(if your computer system requires numbering the assignment of number is an important task)
Every business and every organization is different.
Restaurants are not identical to each other.
Churches are not identical to each other.
Day care centers are not identical to each other.
There will be similarities in each sector, but also differences.
Buying and using a computerized bookkeeping and accounting system is not a plug-and-play adventure.
The bookkeeping and accounting system, starting with the chart of accounts, must be customized to the business model and to each location (if rielevant).
This is not an overwhelming project, and your accounting and tax providers can probably help.
Some time and money spent now will save headaches later.
Bookkeeping is boring, and costly and it does not directly make you any money.
However......it is critical.
Bookkeeping is the capture, analysis, recording and summary of transactions - the beating heart of the business.
Bookkeeping is the raw material of financial statements, analytics, budgeting and tax returns.
Speaking of tax returns....
If your tax preparer has to untangle your bookkeeping there is a cost, sometimes a considerable cost. Don't blame the accountants if you drop a mess on their desk (or more literally into their portal).
Separation of duties is always the most critical internal controls.
A part of that separation is the review process.
If Sally writes checks, Joe should reconcile the bank statement.
If Bob does payroll, at least one owner or senior manager reviews the payroll regularly.
If an outside vendor does payroll with input from Jane, someone besides Jane reviews the payroll.
Sounds simple? Not really.
Everybody is too busy, there are too many deadlines, the crush of daily work makes this difficult.
BUT REVIEW IS ESSENTIAL.
INTERNAL
CONTROLS (IC) QUICK REFERENCE
ICs are a
risk prevention and a risk mitigation system; an accounting process and an
element of organization’s culture
Segregation
of duties IS THE MOST IMPORTANT control
The
objective is reasonable assurance NOT perfection
Basic
techniques are well known and must be implemented
Policies and procedures custom
designed for organization
Employee screening, training,
retraining and supervision
Relentless (not nasty) supervision and
support
Accounting system elements design
fitted to the company
Approval and authorization
Document movement and
retention paths
Physical control of assets
Verification processes
Reconciliations of transactions/documentation/
cash
Information
system controls designed for the organization
External
review and audit used as required
https://tomealey.substack.com/p/types-of-employee-theft
Risks, including financial risks, can be battled with a well-known set of management principles.
The primary rule of risk management is PREVENTION with internal controls, then
If a risk event happens, detect and mitigate the damages, then
Use risk transfer to mitigate damages (usually insurance), then
Prevent recurrence of the risk event
Internal Controls Defined
What do we mean by internal controls? How are internal controls defined?
The rules and procedures implemented by an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.
Definition by the: Committee of Sponsoring Organizations. COSO was organized in 1985 to sponsor the National Commission on Fraudulent Financial Reporting,
Our comment:
The controls, policies and procedures customized for the organization – type of business, product/service, ownership format, physical location, work force and location.
The New Year triggers a lot of accounting, tax and governance issues and tasks.
Now is the time to get organized and get a checklist together of year end and year beginning tasks.
The key players in this are your accountants and your legal counsel. The accountant for certain, and maybe the legal counsel.
Ignoring governance tasks, such as board meetings, can have no consequences or huge consequences.
Do not have a relationship with a business law attorney? This is the year to fix that omission.
Happy New Year!
