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Accounting

Internal Controls for Small Business – PART 1 – CASH

I’ve worked with many companies from small to large (from the World Bank to the local Church) and one area of accounting that all businesses (particularly the small business) need to be attentive is internal controls. I’m focusing here on small businesses because most larger companies undergo annual audits, in which, internal controls are reviewed/assessed and any shortcomings found are formally presented to management.

First off, If you are a small business owner and the whole concept of internal control is foreign to you, I highly suggest you go to our main site (http://accountantdirectory.com) and find a local accountant who can educate you and/or assist you in establishing proper internal control for your business.

The focus of this topical post is internal controls surrounding cash.  As you may or may not have heard, the old saying is true… ‘Cash is King’. As such there needs to be extra attention to ensuring that your cash is secure. In a one man operation this is done easily, but when additional employees are hired things can a get a bit tricky. The key behind all internal controls is segregation of duties. I think this point can be best explained via a few examples (all small business examples):

  • The individual writing checks (possibly an accounts payable clerk) should NOT be the person signing checks.
  • The monthly bank statement should be received and opened by the business owner
  • The monthly bank statement should be reviewed in detail  (I.e. all cancelled checks should be reviewed ensuring no signature forgeries, large unfamiliar transactions should be investigated)
  • If a material amount of the business’ revenues is from cash receipts, at least two people (custodians) must be handling cash at a time, a cash receipts log should be generated with the written verification of both custodians and a bank deposit slip should be generated by both . Cash deposits per bank statement should be verified with bank deposit slips generated by the cash deposit custodians.

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I hope these examples help you grasp the concept of internal control.

Stay tuned as I continue this discussion of internal control in forthcoming blog posts. 

Technology

The Importance of Backing Up

I think at some point in this digital age (i.e. the last 15 years) everyone has
experienced the loss of a file or some digital content, whether important or trivial. If you were like me – it was IMPORTANT – and losing it sucked!

Now-a-days we have features like ‘auto-save’ that help out significantly but without the proper backup system in place anyone is at risk for epic loss.

There are many options for performing a backup. The three primary backup options are: a local backup on your hard-drive, backup on an external hard-drive and an online backup solution.

I personally use all three. But the one that I’m most excited about it and want to discuss here is the online backup solution “Dropbox”.

The beauty of Dropbox is that it basically operates as a mirrored online backup solution to whichever files you choose to include in your Dropbox (i.e. your Dropbox file folder) on your local computer. 

The setup and installation is a breeze. The operation, for me, is flawless… and it’s FREE! That’s right! For up to 2GB you can have a mirrored backup solution that’s totally free. You have the option of increasing the backup capacity of your dropbox to 50GB for $9.99/mo or 100GB for $19.99/mo.

Here’s how I use the 2GB Dropbox. First, the files on my computer are organized into a current vs archive type structure and my media (video & music) files are organized completely separately. Only my current project files are included in my Dropbox (My archive type files and media files are backed up on an external drive). Therefore, any project that I am currently working on is remotely backed up whenever I save a file in my Dropbox (and I click ‘save’ very very often!). What’s even more impressive is that I can download the dropbox program on any computer, ipad, iphone, droid (and probably most smartphones) and have access to most, if not all, the files in my Dropbox at any time! This is especially useful for me because I’m very mobile and work interchangeably  between my desktop and ipad, as discussed in my previous ipad blog.

If you’re looking for a rock solid backup solution, thinking about upgrading, or simply want a more sophisticated elegant solution you should definitely explore the Dropbox. Go to http://dropbox.com for more information.

Tax

Need a Tax Preparer? Facts to Know

As a provider of one of the nation’s largest database of accountant, advisors and financial planners, I found the following very interesting article at:

http://irsattorneys.webarticles.co.za/need-a-tax-preparer-important-facts-to-know.html

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Every tax season someone will write a story about how to choose a tax preparer, the latest scams to watch out for, new tax laws, identity theft issues and on and on it goes until you hit panic mode. So much research, so much time and what if you owe money?

Each year the California Tax Education Council (CTEC) receives phone calls from taxpayers desperately looking for information about their tax preparer they should have learned day one. A surprising number of callers do not even know the tax preparer’s name.

Why do so many of us go into tax season with such immense trepidation until it comes to hiring a professional tax preparer?

Before you Google, flip through the yellow pages or walk into the nearest tax preparation office, know this: If you live in California or Oregon, make sure your tax preparer is legal.

In California, paid tax preparers who are not an attorney, certified public accountant (CPA) or enrolled agent (EA), are required by law to register with CTEC. All CTEC Registered Tax Preparers (CRTPs) must complete tax education courses each year and keep a current bond before they can prepare tax returns for a fee.

If you live in Oregon, all paid tax preparers must be licensed through the Oregon State Board of Tax Practitioners.

Maryland recently passed legislation in 2008 to also require that its paid tax preparers complete education requirements and pass an exam before they can prepare tax returns.

As for the rest of you, choose your tax preparer cautiously. There is no oversight for tax preparers in other states who are not an attorney, CPA or EA. In other words, the training, education and ethical standards these tax preparers go by are set at their own discretion.

Hiring the wrong tax preparer could result in penalties, missed deductions and no protection against mistakes or fraud.

Below are the top ten questions to ask a tax preparer (They should answer “yes” to all ten questions):

1. Will you sign my tax return?

2. Do you have a written privacy policy? Can I get a copy of it?

3. Do you have proof of a tax preparer bond (Required for all CRTPs) and/or errors and omissions insurance (Optional for all tax preparers)? If not, what protections will you offer me and can I get it in writing?

4. If a situation should arise with the IRS, will you stand by your work?

5. Do you take continuing education courses on tax laws? Can you provide proof?

6. Can you provide me with a list of references I can contact about your work?

7. Will you be available after April 15th?

8. Have you ever prepared a tax return dealing with my situation?

9. Will you provide me with a copy of my completed tax return?

10. Will you go over the finished tax return with me?

CTEC was established in 1997 by the California State Legislature to protect the public by registering tax preparers within the state. For more information visit www.ctec.org or call (877) 850-CTEC.

CTEC is a nonprofit organization that is mandated by the State of California. CTEC’s mission is to protect the public by ensuring paid tax preparers (excluding attorneys, CPAs and enrolled agents) are registered, educated and bonded.

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