With all of the curveballs 2020 has thrown at the nation, the economy, and businesses, there’s never been a better time to get an early jump on year-end planning for your business. While all the usual year-end tasks are still on the docket, you’ll want to consider implications related to the Paycheck Protection Program (PPP), any disaster loan assistance you received, and changes made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
We’ve put together a checklist of what you need to do now to prepare for a great year-end that includes annual tasks as well as 2020-specific tasks. Keep reading for assistance getting your financials organized, reviewing your tax strategy, and preparing for next year.
1. Bring order to your books – Now is the time to collect, organize, and file all of your receipts for the year if you haven’t been staying on top of it. Get with your CPA to ensure everything is clean and in order before the end of the year to help avoid surprises come tax time.
2. Examine your finances – This includes having your balance sheet, income statement, and cash-flow statements prepared and up to date. Reviewing this information allows you to see where your money went for the year so you can properly prepare for next year.
3. Work with your CPA on your PPP loan forgiveness application – We are currently awaiting further guidance on the PPP’s impact to taxes, but it’s important to work with your CPA on your PPP loan forgiveness application. Knowing where your PPP loan lies can help determine how to spread out your cash flow for the remainder of the year.
4. Organize all disaster loan assistance documentation – This includes your Economic Injury Disaster Loan (EIDL) documentation if you received an advance grant. EIDL advances must be added to your taxable income (unless different guidance is released), but you’ll be able to deduct any expenses paid with this grant.
Review your tax strategy
5. Review your taxes with your CPA – Do not put off your tax planning meeting with your CPA. Especially after the year you’ve had and any potential federal state aid your business received, your tax plan needs a review. Getting a jump on this early, well before the new year, can help you plan for what’s to come on Tax Day. It’s even more imperative to plan early for any tax obligations you may have at tax time as it’s likely the COVID-19 pandemic will continue to create a volatile environment for many industries’ revenue projections.
6. Execute on year-end tax strategy adjustments such as:
- Accelerating AMT refunds – The CARES Act has accelerated the alternative minimum tax following changes made by the Tax Cuts & Jobs Act. Corporations can claim all remaining credits in 2018 or 2019 thus allowing for filing of quick refunds.
- Using current losses for quick refunds – The CARES Act allows businesses to claim immediate refunds by using current losses against past income, for example.
- Submitting a retroactive refund for bonus depreciation – Businesses can now deduct qualified improvements dating back to Jan. 1, 2018, thanks to a fix made by the CARES Act. This could offer a quick refund.
- Claiming quick disaster loss refunds – Nearly every U.S. business is eligible for disaster-related refunds from losses in 2020 on an amended 2019 return for a quicker refund.
- Timing out your payroll tax deduction – While the CARES Act allows employers to defer paying their share of Social Security taxes, you should review the best strategy with your accountant. In some cases, it’s better to pay on time to take a loss. In others, it provides a liquidity benefit.
- Cash in on generous Section 179 deduction rules – For qualifying property placed in service in tax years beginning in 2020, the maximum Section 179 deduction is $1.04 million. The Section 179 deduction phase-out threshold amount is $2.59 million.
7. Prepare your tax documents – Once you’ve met with your CPA, it’s time to line up all the info you need to prepare your final tax documents or have your CPA take care of it. Be sure not to put this off to the last minute as it will be a complicated year for everyone.
8. Automate your tax function – Instead of spending valuable time and energy on manual tasks and repetitive processes this year, consider investing in data analytics and automation tools to optimize and streamline your in-house accounting and tax functions. There’s never been a better time to invest in technology that will help you become more efficient and accurate.
Plan for the future
9. Evaluate your goals – There’s no doubt that 2020 likely threw a wrench in many of your goals for the year. However, you should still review the goals you set last year and see if you’ve met or made progress on any of them. This will help with 2021 business planning.
10. Set goals for the new year – No one knows how 2021 will play out, and it’s unlikely the market or business will return to normal in the first part of the year. Take into consideration the challenges you’ve faced so far in the pandemic as you plan for 2021. Work with your trusted advisor to determine several back-up plans for what if scenarios in case of any state or national lockdowns.
In a year like no other, it’s crucial to prepare like no other so you’re not met with any surprises or devastating fees. Contact us today to set up your tax and business planning appointment.
If you haven’t converted to cloud-based accounting, it’s likely that COVID-19 may prompt you to make the switch. With more and more businesses and industries operating virtually, cloud access and real-time data has become more important than ever for making the best business decisions possible in uncertain times. With so much up in the air, you don’t want to be caught with a static accounting system that cannot keep up and provide the answers you need.
If you’re on the fence, we’ve put together the top 11 benefits of cloud-based accounting and the real-time data it provides.
1. Drill down on business performance – Real-time data through cloud-based accounting allows you to drill down on the key components of your business’s performance. You can get global or granular on factors such as location, project, customer, vendor, or department and see how each part is impacting your business in real-time. Additionally, you can use snapshots of your cash flow, revenue, expenses, and more to see how they compare year-over-year and how they are measuring up to your goals for this year.
2. Make better data-driven, real-time decisions – You’ve likely experience that last year’s or even last month’s data is irrelevant during these uncertain times. With real-time data, you can see clearly what’s holding you back now, or what’s working, and adjust accordingly. Without the real, hard data, these decisions can feel like a guessing game with a wait-and-see outcome, which is something most businesses cannot afford right now.
3. Make accurate predictions and forecasts – This accurate, up-to-date data allows you to feel more confident in the forecasting for the future your business. You have the facts in front of you to make more strategic predictions over the course of the year. Through the real-time data and historical facts, you can assess past performance, identify trends, and set goals and plans, making adjustments as needed along the way.
4. Automate processes – More and more, businesses are focused on automation, and there’s no better place to start than with your accounting. With cloud-based solutions, you can create automated workflows that handle much of the busy work for you like invoicing and paying vendors. This all funnels back into your real-time data so you can stay on top of your revenue and expenses.
5. Mitigate fraud and reduce errors – Mistakes and fraudulent activity can be more quickly and easily identified when you can see the transactions in real-time. The simplification of the software means less memorization of accounting practices, formulas, and Excel shortcuts – all of which can contribute to errors. And, the automatic reconciliation can help you detect fraud early. Being able to take timely action on errors and fraud can save your business big in the long run.
6. Simplify your reporting and EOY – Have you ever scrambled when a stakeholder asked for an up-to-date report on your business? Cloud-based accounting allows you to present an accurate, timely report in no time, simplifying the process for you and your stakeholders. Additionally, you avoid the end-of-year rush because you’ve been entering your information and tracking all year long, so tax bills aren’t as much of a surprise.
7. Simplify GST compliance – If you have general sales tax to track and monitor, you know it can be a challenge to assemble and file your GST returns. Cloud-based accounting tracks and applies GST automatically for you and allows you to pull a quick report when you’re ready to file.
8. Get access from anywhere – One of the best benefits of cloud-based accounting is that you can access your data from anywhere at any time. In the age of COVID-19 and working from home, this is especially beneficial for you and your team so everyone can stay on track and on task.
9. Collaborate with your accountant – Cloud-based accounting has simplified the transfer process of client information to accountant and saved both sides time and energy in equal measure. Gone are the days of having to download everything to a CD or flash drive and delivering it to your accountant. Now, you can collaborate together virtually and trust you’re both on the same page.
10. Simplify your technology – Cloud-based accounting eliminates hard downloads across multiple computers and saves your IT department (or you) the headache of making sure everyone is up-to-date across the company. Thanks to online hosting, IT doesn’t have to worry about updating the software either, so they can focus on other projects.
11. Get the tech support you need – Most cloud-based accounting platforms offer regular tech support to help you any hour of the day. You’ll also have access to forums of thousands of other users so you can discuss issues and share best practices. Keeping your program up and running and optimized contributes to better real-time data.
For assistance with choosing the right cloud-based accounting platform for your business, contact us today.
CFOs are playing more pivotal roles in modern corporations than ever before, and the impact of the COVID-19 pandemic is shedding light on how CFOs can impact short and long-term financial stability. While growth is frequently considered the ultimate goal for a business, economic downturns like the one created by the pandemic show us that CFOs with eyes on long-term financial stability, and not just on growth, will be able to better help their organizations weather the storms of an economic crisis.
A CFO’s strategy for long-term success should incorporate thorough cost management protocols, a comprehensive and holistic approach to increasing value, and stewardship and championship of the bigger picture. Here’s what that means.
How CFOs impact direct costs
As the financial head of the organization, the CFO naturally serves as the rightful guardian of a business’s expenses. It’s through these direct costs that CFOs can implement stronger internal controls and recover lost revenue for long-term benefit. A CFO can improve long-term viability by analyzing:
Cost of Goods Sold (COGS) – COGS are a key area for reduction as they represent the largest operating expense for the business. Depending on the industry, these costs can be complex, and the biggest expense can come in the form of purchased components and materials. CFOs can optimize this area with help from sourcing programs that consolidate costs by choosing more goal-aligned suppliers.
Indirect Taxes – Indirect taxes are an often-overlooked area of opportunity for many businesses. These taxes can be found in areas like R&D, procurement, labor, utilities, and manufacturing and can represent 25% of personnel expenses. Making indirect taxes a regular component of your tax strategy allows you to reduce costs in this area by 10-20% with quick realization rates. Bonus: “Look-back” provisions can help you save even more.
Real Estate – With real estate, take a holistic inventory of your business and consolidate where possible. The COVID-19 pandemic showed us how much can be done at home or in fewer locations. Consider whether you need all your locations, your facility management costs, and negotiating your contracts. Also, plan for a future workforce that may expect a more flexible work-from-home situation. Just because you‘re growing doesn’t mean you will actually need all that extra space.
Product Optimization – If you haven’t invested and implemented benchmarking and KPIs for your products, you need to now. Data and analytics are key to understanding how you can improve margins and grow profit. With product rationalization, you can drill down into what is really profitable and make decisions on what to cut and what to expand. Look at customer buying habits and your company overhead and determine what’s really worth keeping on the shelves.
Labor – The key to optimizing labor costs lies within efficiency. Do you have the right people in the right seats? Can current employees be retrained to fill open needs? Consider where you can use automation and outsourcing to save on salaries/benefits and overhead.
Working Capital – Assessing your working capital for cost efficiency involves taking a look at:
- Cash flow – Know that cash in the bank doesn’t equal good cash flow. Understanding cash flow is key to making short and long-term projections through times of prosperity and crisis.
- Supplier/vendor relationships – Reconsider and negotiate vendor/supplier terms where necessary while preserving valuable relationships.
- Accounts receivable – Your AR should have set policies for payment plans/terms, follow up procedures, and multiple available payment methods.
- Accounts payable – Assess your AP for opportunities to free up cash flow such as automating electronic payments and diligently checking for discrepancies.
How CFOs impact value
CFOs not only help to optimize costs, but they are also integral in increasing company value because of their instinct and insight into the finances, the business, and how everything relates. Value is the ultimate determinate for long-term success in a business as it is the final measurement taken into consideration at the time of succession or buy-out. And, as any good business valuation professional will tell you, the business is not worth what you think it’s worth. The consensus among international accounting organizations is that value is defined by your customers/stakeholders and created and sustained through the responsible management of your organization’s tangible and intangible assets, resources, and relationships.:
One can clearly see how the areas of impact for CFOs listed in the costs section above directly relates to value creation in a business and the management of financial resources. The CFO is the gatekeeper for value creation and thus long-term viability.
How CFOs champion the big picture
Because the CFO is intimately connected to the financial health of the organization, they are also the eyes of the market. They see the trends and shifts directly in the numbers and can advocate for the right kinds of measurements to make long-term decisions. CFOs should take an active role in their organization’s strategic planning process and use their knowledge to translate the ebbs and flows of the business into scalable growth.
Now more than ever, CFOs are at the forefront of business viability and growth. Their knowledge is invaluable in times of crisis and prosperity, and their voice and action are essential for long-term financial stability.
Our outsourced CFO services can help you establish and maintain a long-term financial strategy for your business. Contact us for more information.
Economic downturns are an almost inevitable reality for nearly every business owner. Decisions made far away from your community, catastrophic and unpredictable weather events, and even global pandemics as we’ve seen this year can disrupt the health and viability of a business. During these challenging times, business owners have to make difficult decisions about the future of their business that not only affect them but also their employees, vendors, clients, and communities. It’s an enormous responsibility to bear, but you don’t have to go it alone.
Your CPA advisor is your best resource for tackling the challenges of an economic downturn. As an outside party, they can help you make smart business decisions that protect your vision and mission while remaining financially responsible. Your CPA can help you:
Optimize your books
Never underestimate the power of good bookkeeping. By keeping your books in order, your CPA can help you plan and project for the future at each stage of an economic downturn. This includes planning for temporary closures and tiered re-openings (and potentially a back-and-forth of both depending on the state of the country and market). When your books are clean and up to date, you can better project how events and decisions will impact your finances on a weekly, monthly, and quarterly basis. Your CPA can help you flex the numbers on fixed and variable expenses to account for increases in costs, decreases in income, and potential changes to payroll. Knowing your numbers intimately can help you make better-informed decisions.
Minimize your tax burden
During times of economic crisis, staying abreast of new and changing tax legislation will be essential to projecting tax burden and uncovering tax savings opportunities. Your CPA is the best person to handle this because they know your business and your industry inside and out and can help you uncover tax savings opportunities that are unique to your circumstances. They do all the research, and you reap the rewards. With a CPA’s assistance, you achieve deductions and credits you may not have realized were available and develop a plan to defer costs where allowed depending on your business, industry, and location. Taxes are not an area you should or need to face alone during an economic downturn. Your CPA has done the homework, so you don’t have to.
Rationalize your decision making
When markets are in flux and your business is facing unprecedented challenges, the decisions you make can make or break your business. But you don’t have to go it alone. Your accountant can help you make data-informed decisions whether that be how to pay vendors, when and how to apply lines of credit, and the best ways to use your capital. Negotiating contracts with vendors that meet your needs and theirs during a downturn will not only achieve cost savings but also preserve relationships – your CPA can help develop a plan that makes sense. Knowing when to engage lines of credit can help you make better moves that you can either afford to pay back later, or maybe prevent you from taking on credit you can’t handle – your CPA can guide you in this process. Knowing where to allocate capital will be key to maintaining operations, and you may need guidance on what expenses to cut and what to keep such as marketing and payroll – your CPA can help you project the ramifications. With your CPA by your side, you don’t have to operate in a silo of decision-making.
Maximize your sense of relief
Most of all, your CPA can provide perspective, alleviate business back-end burden, and help advise you on financially feasible and sound decisions when much of the world feels like it’s in chaos. You have a lot to focus on during a downturn including how to handle your customers and employees in a changing marketplace. Having someone who can help you stay fiscally viable as you work through tough times, and develop a plan for future success, provides a welcome peace of mind.
You don’t have to go through any economic downturn alone. Your CPA can help you shoulder the challenges and weather the storms so you can continue doing what you do best – running your business.
Your cash flow is the financial story of your business. It tells the story of your high points and low points, where the money comes in and goes out, and is the lifeline of your business in times of crisis. Proper cash flow management can mean the difference between survival and going under for small businesses especially in periods of market and economic downturn, such as the period of challenge faced currently by the ramifications of COVID-19.
Here are seven steps to managing your cash flow during a crisis.
1. Update your financial statements – The key to managing your cash flow is operating from current financial statements. As a first step, ask your CPA to provide you with an up-to-date look at your business’s financial picture and discuss the statement together. Your CPA can help you identify areas of opportunity and challenge to ensure you’re proactively optimizing your business’s financial situation no matter the circumstances of the marketplace.
2. Understand your fixed and variable expenses – Hand-in-hand with updated financial statements comes an understanding of your fixed and variable expenses. Sorting your expenses into these two buckets will help you to see where you have expenses you can cut temporarily or permanently to save cash, or where you can negotiate to improve your cash flow in times of need.
3. Know your credit options – Next, contact your banking professional to understand your credit options. In times of crisis, the likelihood of needing to dip into lines of credit increases, and you need to know what’s available to you, the terms, and have a plan for repaying it when the dust settles. This will help you project your cash flow as you begin to model scenarios through a period of challenge
4. Project your cash flow – Your first cash flow projection should be conducted using your current levels of income, expenses, and lines of credit so you can get a clear look at where you stand without change. Additionally, you will want to look back at least five years to see how your financial picture has fluctuated in the context of times of growth and downturn. Then, as you project outward into the future, break down your cash flow at micro increments, weekly or biweekly, to see where and when your cash reserves and credit lines may begin to run out. This can help you predict where you will need to make changes internally and when.
5. Increase income – Once you’ve projected your cash flow out, look at ways you can increase your income.
- Accounts receivable – You don’t have to be facing a period of crisis to start to clean up your accounts receivable (AR). Improving your AR timeline is essential to improving cash flow. Work with your customers to set up payment plans that make sense and adjust your AR policies where needed. Are you offering more time than necessary to pay-in-full? Are you following up with late payments? Are you offering multiple methods of payment? Now may be the time to start considering credit cards if you aren’t currently accepting them.
- Pivot your products/services – The COVID-19 pandemic is forcing many small businesses to pivot their offerings. Restaurants are offering delivery and takeaway, and grocery stores are offering personal shoppers as a couple of examples. As you look around, you’ll see small businesses across the country changing up the way they offer products and services to meet the needs of their customers. How can you pivot while staying true to your strengths?
- Offer gift cards/certificates – If you’re not already offering gift cards/certificates, this may be a good option to start if your services warrant it. Make it as easy as possible for customers to purchase these over the phone or online so you can start to realize some cash now.
6. Decrease expenses – Decreasing expenses is a natural place to start to try improving cash flow during a crisis, but it must be done carefully to maintain relationships with customers, vendors, and employees. Consider your fixed and variable expenses and what can be reduced or cut. Adjusting your utilities at the office if you’re working from home, implementing hiring freezes if you’re unsure about the future, and redistributing contract work to employees are just a few ways to decrease expenses. Additionally, consider:
- Negotiating contracts – Work with your suppliers to understand your options for delaying payments, keeping in mind that they have expenses to meet as well. Approach negotiating contracts carefully as you do not want to damage important relationships.
- Cutting payroll as a last resort – Before you implement lay-offs or furloughs, consider moving employees around the company to meet other needs, or offer work-from-home when possible. If you must make lay-offs or furloughs, ensure they meet the department of labor guidelines.
7. Rerun your cash flow model with different scenarios – Considering your options for increases in income and expenses, model your cash flow using various rates of change in those areas. Use realistic numbers to see how much of an improvement you can expect by making these adjustments over time.
Times of crisis can force small businesses to take a long hard look at their financial picture and address cash flow issues that may have been lingering long before the major event. By monitoring up-to-date financial statements and performing cash flow projections, you can become a better steward of your business’s finances in times of crisis and times of opportunity.
The Internal Revenue Service recently issued the 2020 optional standard mileage rates to be used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
As of January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:
- 57.5 cents per mile for business miles driven, down one half of a cent from 2019
- 17 cents per mile driven for medical or moving purposes, down 3 cents from 2019
- 14 cents per mile driven in service of charitable organizations; the mileage rate for service to a charitable organization is not alterable by the IRS. Instead, it must be changed by a statute passed by Congress.
It is important to remember that a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.
Taxpayers always have the option of calculating the actual costs of using their vehicle, rather than using the standard mileage rates. For more information, please contact one of our professionals today.
Have you ever thought, I know we made more money than our
statement shows, or I know we don’t owe that much in taxes; we never
have any money! These moments of confusion are usually the result of either
an assumption that your data is accurate, or a misunderstanding of how
financial statements work.
Where did all the cash go?
You can always find the answer in your balance
sheet. One of the first red flags that something is amiss is when your balance
sheet tells a different story than your income statement. The key to unraveling
the mystery is understanding the balance sheet, which shows your financial data
at a fixed point in time. There are three pillars of a balance sheet.
- Assets: WHAT YOU OWN – Cash, receivables, equipment,
supplies, inventory, land, etc.
- Liabilities: WHAT YOU OWE –
Accounts payable, accrued expenses, bank debt, credit, etc.
- Equity: NET VALUE – Assets minus Liabilities
A business owner’s primary goal is to increase profit month over month. So, when a CEO reviews a balance sheet, their eyes typically skim right to net value. A mistake on the balance sheet will never be in your favor. If the value is inflated, demise awaits. If the value is deflated, you miss opportunities. Novice bookkeepers tend to make the mistake of confusing assets and expenses. The ripple effect is showing less expense and more profit and failing to price future jobs with the true associated costs. Ensuring the right people with the correct understanding control your books is the first step to avoiding errors. Outsourcing accounting services is a great way to make sure the job is done right the first time.
Another tip is to approach your assets, liabilities,
and equity in the same the way you look at your income statements. Keep a
historical record or your balance sheet and compare the data month over month.
A snapshot view is great for a quick assessment, but if you want to avoid
discrepancies, you need to look at the whole story.
Understanding your financial statements
When a CEO lacks the financial knowledge to catch nuances in their statements, they are unable to take corrective action to change the results. Once you understand the language of your financial statements, you can interpret what they mean to your organization’s financial health. For example, knowing what you sell beyond the widget is a critical step to calculating your true assets. Likewise, a mature business owner knows that most likely reason for a discrepancy between a healthy P&L statement and a low cash account is lagging receivables. The numbers on the page are clues. When you learn to read the clues with the big picture in mind, you are better positioned to make sound business decisions. Failing to understand variances, overreacting to numbers on a page, and not catching insufficient and inaccurate data are clear indications that you are a good candidate for external help.
Financial statements can be misleading. As a business owner, noticing when something is amiss is a key element to managing your organization and driving growth. Do not let misleading financial information or a misunderstanding of financial statements be the downfall of your company. Ensure that you and your managers have the right financial management skills. We can assist you in developing accounting practices that will help make your company more profitable. Call us to learn more about our outsourced accounting services.
Outsourced accounting services are a cocktail experience – a
carefully chosen mix of professionals, curated to leverage their expertise to
grow your business. Each firm does things a little differently, but there are a
few fundamentals across the board.
- Remote accountants work in sync with technology to help you do
more with less.
- Virtual accounting is a hybrid of traditional accounting and great
software; in fact, virtual accounting is typically considered a software as a
service (SaaS) option.
- Remote bookkeepers use customized software, cloud-based tech, and
a human touch to provide optimal solutions.
The most successful engagements begin with the right expectations and proper set up. Many businesses do not take the time to set their office up with right considerations. Here are a few ways to make sure your virtual accounting office is efficient and successful.
- Virtual means virtual! If you want to go remote, you will need to establish procedures for sending items (scanning, email, etc.) to the virtual office. Snail mail is not efficient! Likely, your CPA will have an implementation plan, but if you aren’t positioned to use the cloud, virtual services will be a learning curve. Make sure you have a conversation with your provider to determine appropriate technology integrations.
- Streamline invoices. Set up a “generic” email for the accounting department so multiple people have access. All invoices should be sent to this email, which can then be routed to a billing platform, like Bill.com.
- Internal controls. Establishing a system for the virtual approval of invoices and payments will ensure the flow of information is accurate, on-time, and properly classified. Virtual accountants typically have at least two sets of eyes on each step and multiple levels of staff working on one account.
- Uniform procedures. Make it simple to issue invoices and payments and require the company to follow the procedures with no exceptions!
- Align communications. Designate an in-house contact person for your virtual team. Without someone in the office physically, assigning a point person will ensure minimal interruption of service.
- Easy, not absent. Owners must review financials on a regular basis and set up monthly or quarterly meetings with their remote accountants to make sure that everyone is on the same page. Owners have a tendency to turn away from their financials when they think it is all taken care of. This lapse violates the first rule of ownership – always have one finger on the pulse of your bottom line!
- Accessible Accounts. To be efficient, your virtual office is going to need partial access to bank accounts, credit cards, payroll and routine vendor accounts. Access to view these accounts online should not come as a surprise. After all, how else can your virtual accountant keep track of your income and expenses and reconcile the books each month without it? It is crucial that you take the time to set account permissions correctly. Full access to authorize transactions is not necessary. Providing access to these accounts will allow you to have a much more efficient (and less costly) accounting team!
Regardless of your industry, size or
stage of growth, outsourcing accounting services can be a tremendous advantage
to your business. When the arrangement is a good fit, it allows business owners
to operate more effectively. Starting off on the right foot, with the right
expectations is critical to overall success. Our experienced CPAs and
consultants can help you get started working with a virtual accounting office.
Call us today.
Payroll fraud can put a huge dent in your bottom line – costing companies billions of dollars annually. Unfortunately, companies are often unaware that a corrupt employee is in their midst. According to data from the Association of Certified Fraud Examiner’s (ACFE) 2016 global fraud study, Report to the Nations on Occupational Fraud and Abuse, payroll fraud is an especially high risk for small organizations. In the United States, 131 cases of payroll fraud, representing 12.6% of all asset misappropriation schemes, were reported in 2016. While most fraud is uncovered within one fiscal year, payroll fraud tends to fly under the radar for an average of two years before detection and on average costs companies $90,000 per occurrence.
As business advisors, we stress the importance of internal controls to prevent fraud and theft and to ensure the accuracy of accounting data. However, many situations still exist in which organizations fail to establish adequate control systems to reduce transaction costs for many reasons. Whether it is a lack of information or a lack of personnel, the fact of the matter is that payroll fraud is usually perpetrated by a single or multiple insiders. The following strategies can help prevent and detect payroll fraud in your organization.
This is one of the most effective strategies, and if you do not already have one, we strongly recommend implementing processes that regularly check for schemes. Consider specialized software that combats ghost employee tactics by looking for red flags such as duplicate Social Security numbers, addresses or direct-deposit accounts. Another step is to be transparent with your audit plan. Making employees aware that you conduct such audits may be enough to deter them.
Compare payroll numbers against output. A spike in overtime hours during a slow month, for example, should prompt further investigation. We can help you analyze your data and identify any red flags.
- Adequately separate duties.
This will prevent incompatible functions from being performed by the same individual, especially in the accounting department. Ask your payroll company if they allow multiple people to be in the authorization chain of command. Most payroll companies allow for multiple recipients of payroll reports; be sure you send final reports to an outside accountant and the owner. If one employee handles payroll, we recommend hiring an outside person to input the information into the accounting system, acting as the internal control.
- Routinely check documentation.
Check documents such as timecards and any other payroll documentation. You should be on the lookout for employees who are claiming excess hours and overtime as well as any other items that seem suspect. If employees know you are regularly checking time cards, they will be less likely to test the waters.
- Controls for new and terminated employees.
These are often overlooked. Make sure you collect the right documentation when adding new employees. Equally important is following protocol for terminated employees. While failure to remove a terminated employee from payroll is not fraud, controls will help you avoid the embarrassment of paying an employee after termination.
If you have
concerns about payroll fraud in your organization, please call one of our
Have you ever stopped to think about whether outsourcing financial management functions of your business would benefit your organization?
You will probably be surprised how many activities they encompass and how vital they are to the success of your company. Your business thrives when these activities are in order. When faced with the options, a business owner quickly realizes that either they will need to manage their organization’s finances or hire someone else to do it.
planning, financial risk assessment, record-keeping, and financial reporting
are time-consuming cogs in the wheel of a functional business and are best
managed by someone who has the right qualifications. But the fact of the matter
is, CFOs cost money, and most small businesses do not have forty hours of work
for a qualified individual. Rightly dividing resources within an organization
is a critical matter, which is why outsourcing CFO services makes a lot of
What is an outsourced CFO?
An Outsourced CFO is a valuable partner that can:
- provide budget guidance,
- prepare and analyze financial statements,
- forecast cash flow,
- provide strategic financial planning and advisement,
- evaluate current bookkeeping systems, and
- act as a negotiator.
Beyond these critical finance utilities, an Outsourced CFO can deliver expert “back office” support to organizations so they can focus on growing their business. The finance function can be broken up into three main activities, each with a series of sub-functions.
- Transaction processing – accounts receivable, customer billing, credit and collections,
accounts payable, general accounting, payroll, tax accounting, cost accounting,
fixed asset accounting, benefits administration, and internal and external
- Control and risk management – budgeting, cash flow
management, insurance risk management, forecasting, tax planning, performance
reporting, treasury management, and internal and external audit
- Decision support – business performance analyses (ratio analysis, cost analysis,
pricing analysis), business planning support, and finance function
Is it time to consider outsourcing?
Determining whether to outsource requires a focused and deliberate
approach. Below are six advantages that
will help you decide whether outsourcing financial management would benefit
Operating Costs – Any change that will reduce costs without otherwise endangering
operations will generally be positive. Many businesses are just too small to
justify hiring a full-time, in-house CFO.
Efficiency – Inefficient operations harm your organization. A real advantage of outsourcing is that behind
your outsourced financial planning expert stands an entire team of accountants,
partners, consultants, and bookkeepers. When financial activities are
outsourced and analyzed by an independent party specializing in that activity,
efficiencies will result.
Flexibility – When a business owner wears too many hats, one is bound to fall
off. Outsourcing CFO functions will
allow your organization to become more flexible in its ability to deal with its
environment and core activities. Changes
that make an organization more agile will make it better able to excel.
Risk – Outsourcing a function may reduce the risk an organization
faces. Outsourcing payroll, for example,
is likely to reduce risk, as experts will now do the job.
Ideas – Outsourcing CFO duties will bring new ideas to the table. Small
businesses need to recognize that outsourcing an expert will give them a clear
advantage with complex financial activities.
Growth Potential – Many organizations are limited in their ability to take on more
activities because their current staff is spread too thin. Outsourcing financial activities can allow
business owners and other staff to engage in better-targeted tasks.
Before determining whether to outsource financial management functions, there are many factors to consider including the size of your business, industry, number of employees, volume of transactions, and skill sets.
As a business owner, accepting the “virtual” reality of outsourcing means adjusting your expectations. In this environment, you will not be your CFOs only client, but you will have access to exceptional quality. If you are involved in the authorization process and can extend trust beyond your four walls, then you will truly benefit from this arrangement. However, if you are hung up on signing checks and are not able to hand over responsibilities, you will hinder the process and negate the experience.
Outsourcing services from your organization may enable you to operate more effectively. With our requisite knowledge of different types of organizational structures, we can help you create innovative changes in your organization. If you would like to learn more, please call our office to speak with one of our professionals and learn how you can enhance the success of your business.
Learn more about our outsourced CFO services by clicking here.