This month, I’m going to discuss four business/accounting related errors and how to avoid them. Most people here know that in addition to my full-time work, I served more than 12 years as an adjunct professor and instructor. I’ve taught everything from accounting, business management, auditing, internal controls, certification courses, computer-based programs, fraud prevention and detection courses, finance, etc. One of the most often asked questions that I get from students is, “What are the most common mistakes made in the accounting”?
A colleague recently reached out to me, and we were discussing a similar topic (accounting errors), but they added, “How do you prevent them?”
I’m going to list and discuss four of many possibilities:
- Transposition Errors: These occur when a person reverses two or more sequential digits. For example, an employee enters 43 and not 34. To spot this kind of error, you net the difference. How do you prevent it? Attention to detail is imperative, but also have a reviewer check transactions from registers. Use the transaction (business transaction support) to the system/general ledgers. Ensure you assign reviewers and make sure your managers also review the transactions, especially during reconciliations.
- Not Performing Timely Reconciliations: Skipping reconciliations can lead to ineffective management, stakeholders not being able rely on financial reporting, misinformation, errors, deficits and even fraud or misuse. Have your business-specific systems synced up with the data feeds from banks — this allows for data to be streamlined, allowing for real-time comparisons. Avoid skipping reconciliations by establishing reconciliation dates. When giving business assignments, set due dates to ensure that there are follow-ups and require your management to review your reconciliations. Most importantly: ask questions.
- The Over Reliance on Automated Systems: Automated processes simplify accounting process but they certainly are not perfect. When teaching students accounting, I often find folks are very eager to jump right into working with systems – their jobs require it. However, they struggle with explaining the ends and outs of the accounting process. They fail to understand important bigger-picture concepts, such as the accounting equation, how all the accounting transactions (what they are posting) impact the books. To put it simply, over reliance on automated systems can cause staff to input wrong payee names or terms, post transactions to the wrong accounts and post to the incorrect journal. It’s important to note that your workflow and processes can help prevent errors. Ensure employees are performing data entry in a timely manner, use your bank feeds to match transactions and ensure accounting managers and business managers review reports to ensure accuracy and reliance.
- Inadequate Checks and Balances: It’s easy for individuals to get so focused on production, they forget the importance of separation of duties. No one person should handle all accounting duties and responsibilities. For example, one employee should not handle all the journal entries, accounts receivable and payable duties, payroll, purchasing of supplies, reconciliations, adjusting entries, managing the P-card, etc. By implementing controls (checks and balances), you prevent the fraudulent receipt of funds, an employee depositing the funds into the wrong account, and/or the false reconciliation of accounts. Avoid giving direct authority to employees for accessing bank statements and signature authority. Managers must review statements and images to ensure reliance on reporting.
Finally, remember to ask questions. When you ask questions, your reports know you are looking, you’re being properly informed and you may be teaching employees simultaneously. If you care – they care!