The Solo Accountant Reporter

$2.1M Embezzlement...Possible Murder...Then Suicide

Be careful business owners and executives!

Here's another example of alleged fraud in the workplace. According to a 4/23/08 article in The Atlanta Journal-Constitution online newspaper,

"An accountant who killed himself after police questioned him in the disappearance of two wealthy clients had embezzled $2.1 million from the couple and seven companies, his former employer said. An audit ordered by The Club Group found that chief financial officer Dennis Gerwing took money from its clients for four years, depositing it into a hidden checking account, the management company said Tuesday. Gerwing committed suicide March 11 after investigators questioned him about the disappearance of John and Elizabeth Calvert, who split their time between a yacht on Hilton Head Island and a home in Atlanta. The couple were last seen in early March, and searches of the resort island, its harbor and in Georgia have been fruitless. Police have said Gerwing, 54, was the last person to see the Calverts." Read the full article

While an extreme example, this situation should be a serious reminder of how vulnerable organizations can be to misappropriation of cash and other assets. For tips on how to deter/prevent workplace fraud...read the "How to Nab the Rogues: 10 Fraud Tips" article in CFO.com.   

The Solo Accountant Reporter Selected for Top 100 List

I'm ashamed to admit it, but it has taken an award (of sorts) to get me re-focused on making updates to this blog. I just learned that The Solo Accountant Reporter has been included in the"Top 100 Freelancer Blogs" post in an information-packed blog entitled Bootstrapper. The post opens with this commentary: "Freelancing is often a difficult profession: it can be lonely and nerve wracking at the same time. But you can make it easier on yourself by learning from and bonding with other freelancers out there who’ve blazed the trail ahead of you. Here are 100 blogs, in no particular order, that can help you find advice and guidance for your freelancing career."

Avoiding Employee Reference Check Mistakes

A critical step in the employee hiring process is reference checking. Paul Barada, a salary and negotiation expert with Monster.com, has identified the most common reference checking mistakes made by recruiters and employers. He lists them in his article, "Reference Checks: Five Mistakes You Want to Avoid." Here they are:

1. Not checking at all
2. Lack of consistency
3. Making the job offer contingent on a reference check
4. Not requiring references who have worked directly with the candidate
5. Asking leading questions and failing to ask follow-up questions

Barada adds, "Careful reference checking requires time, training and insight. If done properly, it can be one of the most useful hiring tools available to any employer. If done poorly, it can lead to hiring someone who not only can't do the job, but also who could do more harm than good for the company."

Read the entire article.

Small Company Controller's To Do List

Until each of these ten items are successfully resolved by a small company controller, they should remain on his or her To Do list. Here they are, in no particular order:

1. Get financial statements up-to-date...and accurate.
2. Pepare operating and capital budgets for next 12 months.
3. Generate weekly and monthly cash flow forecasts.
4. Identify, track, and analyze Key Performance Indicators (KPI) for the business.
5. Work together with company executives and outside accountant to design and implement appropriate internal controls.
6. Document and improve accounting policies and procedures.
7. Establish and maintain a well-organized system of files and records.
8. Implement a staff training and development program...then delegate more work.
9. Enroll in TMU (Teach Myself University) and adhere to a multi-faceted and ongoing self-improvement progam.
10. Get the job done...while maintaining overall balance in life.

Discourage Stealing by Your Employees

A good defense against employee fraud starts with a proactive antifraud mindset by top management. This should result in company polices and procedures...and employees...that all work together to prevent and deter wrongdoing in the organization. Tracy Coenen, a CPA and nationally recognized expert on fraud investigation, recently posted the following in her FRAUDfiles Blog:

Top Ten Ways to Prevent Employee Theft

1. Education. If employees are aware of fraud and how it happens, they will be your best on-the-job sleuths.

2. Surprise Audits. When employees are aware that there will be random checks of their areas, they are more likely to be honest. They also will not feel singled out when it is their turn for an audit.

3. Hotlines. A mechanism for anonymous reporting of fraud encourages employees to look out for the best interests of the company, without fear of reprisal.

4. Assessment of Internal Controls. Companies need to take an honest look at what fraud prevention controls they have in place. They also need to be honest about whether or not those procedures and policies are being followed and whether or not they really work.

5. Background Checks. Having the right employees is the first step toward fraud prevention. Avoid employees with criminal backgrounds or dishonest job applications.

6. Open Door Policy. Make employees feel that it is okay to discuss concerns with management. And then when they do discuss their concerns, act accordingly. Ask lots of questions, but be supportive.

7. Perception of Fairness. Pay your employees fairly and try not to show favoritism. When employees feel cheated or devalued, they are more likely to justify stealing in their minds.

8. Employee Empowerment. Give employees the authority and confidence to make decisions and take action. The more involved and empowered employees feel, the more likely they are to look out for the best interests of the business.

9. Continuous Improvement. Management should be constantly looking for ways to improve policies and procedures. Fraud prevention is an ongoing, dynamic process that requires continuous evaluation and improvement.

10. Employee Involvement. Your employees are the people who are most aware of areas vulnerable to fraud. Talk to them and ask for their help in securing the company.s assets. Fraud prevention applies to everyone, from the top down.

No Limits: Give it Your Best!

We can all take a few lessons from this powerful video. It illustrates the value of leadership and encouragement, regardless of the setting. More importantly, it shows that by disregarding artificial performance limitations we or others place on ourselves, and then simply (or not so simply!) doing our very best, we can shatter prior levels of performance. Not only will giving it our best help us achieve new personal bests, it positions us to be better leaders.

Note: I found this on The Organic Leadership Blog.

Teamwork: Project Success Depends On It

Working together. Whether on the field, or in a business turnaround, fraud investigation, or other critical matter, teamwork is a critical success factor.

As a forensic accountant and business consultant, one of the first steps I take on an engagement is to identify all the key players that will participate in the assignment. This begins the process of building a teamwork approach to seeing the engagement to its ultimate successful completion.

Early discussions with client management and their attorneys, external and internal auditors, and others such as computer forensics specialists and private investigators, allow for timely clarification of individual roles and responsibilities and engagement issues, strategies, and timetables. Project leaders emerge from this effort, and under their direction the team is hopefully brought together to form a united group...with each team member working toward common objectives and motivated to carryout his or her individual role.

Teamwork is critical not only at project kickoff, but also throughout each phase of the engagement. As new facts are surfaced and unexpected circumstances develop, strategies and timetables must be modified. If team members are not sufficiently communicating and working together, conflict and confusion will arise and this always results in negative results. The team must continually assess all that is going on and frequently regroup whenever appropriate.

Think about members of a well-coached football team. Certainly they begin the game with a common desire to work together in executing a creative game plan. Before each down, the coach calls the play he thinks will work best at that point in the game. Then, the quarterback might see the opposing team lined up in a troublesome defense so he calls an audible to change the play. As the game progresses, timeouts are called for the players to regroup, and then halftime is used for a more intense assessment and re-strategizing session. Hopefully, the team continues to work together as the game progresses and victory is the result.

On most every business project I've ever worked, the quality of the teamwork that existed during the engagement was a determining factor of the degree of success that resulted. This is true whether the team was made up of many persons or just a few. I'm determined to do my part to be a good team member, and team coach/leader whenever appropriate. To help, I turned to some fairly good weblog material on the subject. Here is one you may find useful:

Twelve Tips for Team Building: How to Build Sucessful Work Teams (by Susan M. Heathfield)

Atlanta-Area Bookkeeper Allegedly Embezzles $500,000

See this link for a classic example of how a small business with weak internal controls can be victimized by a trusted employee. If you own or manage a business, take a lesson from this article and make sure you have fundamental controls in place to help prevent or detect fraud in your organization.

Are You Billing All Your Revenue?

Don’t let hard earned income slip through the cracks!

You’ve worked hard for a long time to build your business. Strong customer relationships and smooth-running operations are now yielding revenue streams from the various business segments you’ve strategically established, along with the many provisions you’ve negotiated into the related sales contracts. Things are going very well. Or are they? Here’s the question: Are you sure your organization is in fact billing for all the product or services you’re delivering?

Think about this scenario: A service company has long-term contracts with ten different clients. These agreements vary greatly in design and each of them provides for revenues of at least $2 million per year, via monthly fees to be earned from 6-to-8 different services at 1% to 5% of estimated amounts of related cost figures, to be trued-up once the actual costs are known. In addition, at various milestone points, the contracts provides for large one-time billable amounts.

It would be easy for this hypothetical company to superbly deliver on every operational aspect of each contract, but still fail to bill for all of its hard-earned revenue. How could this happen? Your CFO or controller could be “asleep at the wheel.” Hopefully that’s not the case. To be sure, I suggest you hold a series of discussions with your key financial, sales, and operations managers to answer the following questions:

• What customers, projects, product lines, etc. make up the majority of our annual revenues?
• How much variability is there in how and when our various revenue streams are calculated?
• What are the significant processes and sub-processes that drive each facet of our revenue cycle…for each of our key income streams?
• What significant risks exist (i.e., what could go wrong?) within each identified process that might allow for inaccurate, incomplete, or untimely billings?
• What controls do we have in place to mitigate these risks? Are they designed effectively? Are they operating effectively?
• What changes do we need to make in our revenue-cycle internal controls? Who will be responsible for the remediation effort? When will these changes be made?

Litigation Costs May Exceed Benefits

In my role as a forensic accountant, I've had a front-row seat in numerous small-business disputes in which lawsuits and countersuits were filed. As the cases progessed, sometimes over a period of years, I've noticed one thing they almost all have in common--costs that exceed the expected benefits. As a general rule, I believe it's true...the only ones who win in litigation are the lawyers (and perhaps the forensic accountants).

My advice to most anyone involved in a business dispute is to make every effort to work out an agreeable settlement to avoid getting embroiled in a legal battle. Don't be too quick to sue someone, even when you've got every right to do so. If it costs $300,000 in professional fees and countless hours of management time taken from running your business...to "hopefully" (you never can be certain how the judge or jury will rule) collect on your alleged loss of $200,000, it's simply not worth it. Similarly, if you're the one being sued, it might be prudent to go ahead and cough-up some early settlement dollars, even if the lawsuit is frivolous.

Admittedly, in some instances, the right thing to do is to pursue justice at almost any cost. For example, to help remove an embezzler from the workplace or to deter other employees from following in his or her footsteps. Defendants may elect to stand firm to protect their reputation when wrongfully sued by a vindictive opponent. Regardless the situation, it's important to weigh the costs as best as you can before getting in too deep. If you're not careful, the case will deteriorate, funds will dissipate, and your once-thriving business will suffer greatly from the legal distraction.

I'm increasingly supportive of utilizing various forms of alternative dispute resolution, such as mediation and arbitration, as a way to avoid or reduce litigation costs and time. The National Arbitration Forum Blog included a recent post entitled, "Business and Mediation, A Popular Combination," which includes the following quote:

Madison, Wisc.-based attorney, Terry Peppard, says that "mediation is now an exceptionally well-proven business process, and there should be no business executive anywhere in America who is not intimately familiar with the mediation process and its benefits.” Peppard, who recently published "Arbitration and Mediation of Business Disputes" says, “You can't be a good executive if you don't know that this is out there and what it can do for you.” According to Peppard, there are several instances when mediation is the “best way for a business to go.” These are when:

1. It is important to maintain a valuable business relationship between the parties while still resolving the dispute.
2. It is important for a client to avoid disclosure of confidential business data.
3. It is important that the case be resolved as fast as possible to avoid disrupting business operations.

Check out Peppard's website for:

Frequently Asked Questions: Arbitration

Frequently Asked Questions: Mediation

If you've got an opinion on this topic, please post a comment so we can benefit from your insights. Input from attorneys, ADR specialists, and parties to present or past business disputes are especially welcome.

Lessons From the Game of Football

I love football. What a great sport! While way too slow and small to play college ball, the ten years I competed at the Pop Warner and high school levels gave me a first-hand appreciation for this exciting game. For each of the thirty-three years since I last "strapped on the pads" I've benefitted from lessons learned in the weight room, on the practice field, and during the game. I'm reminded of this once again at this time of the year when I watch my favorite high school, college, and pro teams pursue post-season championships.

My experience with football, both as a player and a spectator, has taught me the following as it relates to business:

• Hard work definitely pays off. By setting pre-season goals, both at the individual and team level, then working together before and during the season and each game, definitely increases the chances for success.
• Capable, dedicated leadership from the coach and his or her staff is critical. Without it, even a team loaded with top talent will flounder.
• It's a team game. The team suffers when members loaf or don't work together towards shared goals.
• Winning is a lot more fun than losing. It makes all the hard work worthwhile.
• Competition is good. It brings out the best in us and our businesses.
• Cheating and cutting corners does not pay-off and poor sportsmanship is a sign of bad character.
• Fundamentals are important. Basic blocking and tackling, along with sharp execution of a sound game plan will carry the team far.
• There's no need to panic when you drop a pass, get behind, or lose a few games. It's how you finish that counts. Hey, even if you go "0-and-10" and you did your best, you can still hold your head high.
• Don't get too comfortable when you're ahead. Remember, it's how you finish that counts.
• Don't quit too early. But know when it's time to re-group or re-direct.
• When the season is over, get started on next year.

Lawyer Blogs: By the Hundreds!

The blogosphere is absolutely loaded with lawyer blogs. Take a look at the "Taxonomy of Legal Blogs" post in Ian Best's 3L Epiphany blog and you'll see what I mean.

Not only does this third-year Ohio State University law student include a huge listing of blawgs, but he organizes them by a number of categories, including legal specialty, jurisdiction, author, topic, etc.  It's the best such list I've seen and I'll be referencing it frequently in the future.

Note: To give credit where credit is due, I found this very useful blog index, thanks to today's post by lawyer Dan Hull in his "What About Clients?" blog.

You Suspect Fraud: Now What?

My previous post referenced a great list of Fraud Red Flags to help you spot symptoms of embezzlement and other fraudulent activity in your organization. Now, let's assume you've identified some clear signals of potential wrongdoing. What do you do? Here are five suggestions:

Don't over-react. Emotions often run high when fraud is found or suspected, especially in privately-owned enterprises. When a formerly trusted partner or employee is being pursued for fraudulent activities, the victim will normally experience strong feelings of anger and betrayal.

Resist any temptation to accuse the suspect prematurely and in the wrong way. If your organization has a formal fraud response plan in place, be sure to follow it carefully. While there's less of a tendency to do so, you shouldn't under-react either. As calmly as possible, and with a cool head, relentlessly pursue the matter to an appropriate resolution.

Analyze and discuss. Carefully evaluate the identified red flags, be alert for other potential symptoms, and consider offsetting factors that might dispel your notion that fraud has occurred. You may want to preliminarily drill-down somewhat on the issues by reviewing financial records and source documents and by being extra-observant in discussions and interactions with the suspect and those who might ultimately be able to shed more light on things.

Be very careful with these initial steps, to avoid setting off potentially damaging alarms that might backfire on you or impede later investigation. Use good judgment as to how and when you may need to report your suspicions to the proper individuals in management. Once you've reported the matter, share and discuss your observations so that next steps can be planned.

Call your lawyer. Very early in the process, provide in-house or external counsel with your preliminary suspicions/findings. Obtain detailed, step-by-step instructions from the attorney and be sure to follow this guidance carefully.

Investigate carefully and thoroughly. Under the direction of the lawyer, conduct a thorough fraud investigation. This will typically include detailed reviews of documentary evidence and carefully-sequenced interviews performed by trained forensic accounting, electronic data-discovery professionals, and other experts retained by the attorney. Be careful to obtain and preserve evidence correctly, to help ensure its integrity and admissibility for potential trial activity.

Keep your eye on the business. A lawsuit and related fraud investigation will generally take on a life all of its own. Huge amounts of management time and precious cash can be consumed. Don't let this weigh too heavy on your emotions, physical health, family...and bank accounts. Stay balanced and be prudent...and don't forget you've got a business to run!

Can You Smell Fraud in Your Organization?

Business owners, executives, board members, internal auditors/external auditors, and others having corporate governance or audit responsibilities should be well-aware of various symptoms of fraud. An understanding of fraud signals, along with an ongoing alertness for their existence, will aid greatly in the battle against misappropriation of assets, fraudulent financial reporting, conflicts-of-interest, and other workplace wrongdoing.

Perhaps the best, most-comprehensive listing of Fraud Red Flags you'll ever see can be found at protiviti's KnowledgeLeader site.

Note: Don't wait to visit KnowledgeLeader, as I can't guarantee it will always be accessible for free. Beyond a free 30-day trial, there's an annual charge to access this excellent database, which includes a huge amount of quality resources pertaining to the internal audit and risk management community.

Business Startup Mistakes

Jason Caplain recently offered some good advice for startup business ventures in his Southeast VC blog. He cautions entrepreneurs about...

1. Realizing you have the wrong people, but still holding onto them
2. Taking too much money from VCs early on
3. Building a product without the customer in mind
4. Giving away the product for free
5. Not focused on hiring great sales people; hiring sales people without a bonus plan

                   -- Read the full Top 5 Startup Mistakes article.

In another post, entitled "Smart Ways to Control Expenses in a Startup," Jason refers to a recent article in Forbes.com, Here's a summary:

• Always ask for discounts and always negotiate
• Don't own; borrow or lease instead
• Look for opportunities to barter
• Strike partnerships with non-competitors
• Analyze all major expense line items
• Don't be too cheap (Sometimes it's critical to spend premium prices)

Slightly New Blogging Direction

After several weeks of no posts, and as a result of a fresh evaluation of how to best integrate blogging into my accounting and consulting practice, I've decided to take the Solo Accountant Reporter in somewhat of a new direction.

Very simply, future postings will be more targeted to actual client recipients of forensic and managerial accounting services, as opposed to the solo accountant and consultant service providers I initially viewed as my audience.

You'll notice (on the right sidebar) revised categories which highlight certain of the broad topics I'll be addressing in the future.

Freelancer or Go-It-Alone Business?

If you're not sure whether you should operate as a free-agent practitioner or a "go-it-alone" business, Bruce Judson's free 204-page online book, Go It Alone!, does a good job of laying out the differences between the two. Here's a brief excerpt.

"Go-it-alone business is not simply a fancy term for a free agent or a freelancer. These businesses provide their founders with far more stability than freelance work and more personal rewards than franchising. These entrepreneurs are building a substantial asset. They have control of their own destiny. In difficult economic times, free agents or freelancers are typically in the extraordinarily frustrating position of waiting for the phone to ring. In contrast, go-it-alone entrepreneurs always have a focus for their energies and an asset that will provide them with an income stream.

Moreover, freelancers, free agents, and many small-business owners typically work on an hourly or daily rate, or they charge by the job. In all of these cases, they depend entirely on what they can produce as individuals, and their earnings are tied to the clock. They have not established a business system that allows them to magnify or leverage their skills. As a consequence, their earnings are inherently limited. Go-it-alone businesses don’t suffer from this income constraint."

Table of Contents...

Maister: The Managing Partner's Speech

I just read the latest entry in David Maister's "Professional Business, Professional Life" blog. It's packed with practice management material which applies to the largest of CPA firms...as well as to you and me, the solo practitioners of the world. Here are a few excerpts:

In this profession, the need for personal development is life-long. The minute you begin to cruise, to rely on skills learned last year, that’s the moment you begin your decline. All of us, from the 30-year-old’s to the 60-year old’s must constantly be asking “What new skills can I acquire?”. And the firm has the right to ask that same question of you.

My experience has taught me that success comes not to those who swing for the fences every time at bat, but those who commit themselves to a continuous program of constant improvement, base-hit by base-hit.

There are many ways to make yourself more valuable on the market: intellectual leadership, better client counseling skills, greater ability to run large projects, and so on. But one stands above all else: specialized industry knowledge. Regardless of your discipline, and your command of it, I believe that each and every partner should have one or more industries that they know in depth, to the level that the clients perceive you as up-to-date in their industry as they are. There is no better way, in my view, for each of us to succeed than for every one of us to declare a specific industry specialization.

Read more...

Industry Specialization: Give it Some Thought

In my previous post, "The Basics of Building a Solo Practice," I emphasized the importance of developing niche-oriented capabilities. Relating to this, a post in Michelle Golden's Golden Practices blog included these comments:

"When an accounting firm establishes any formal niche, thoughtfully measuring your foothold in various industries and considering the reception you'll have within them can mean the difference between success or failure."

"Before deciding which niche to pursue, consider the perils of each vertical market before jumping in. Don't start with the toughest markets to penetrate. There's probably some lower-hanging fruit that is more ripe for the picking...and tastier, too."

Ms. Golden provides other advice under the headings, "Taking an Inventory" and "Choosing the Right Industry." Read the entire "Choosing an Industry Niche" post.

The Basics of Building A Solo Practice

Since starting my practice over 20 years ago, I've consistently followed a very basic business development strategy. In the hopes that you may benefit from what has worked well for me, here are some suggestions to consider:

• First, select service offerings based on your personal skill-set strengths and weaknesses. Begin with services needed by all companies (such as basic bookkeeping, cash-flow forecasting, tax planning and compliance, etc.), then develop niche-oriented capabilities (such as litigation support, industry specialization, business plan writing, etc.).
• Once you've identified the types of work you want to pursue, concisely summarize these service capabilities in a one-page "Menu of Services." Use this, along with a well-written biography and a professionally-designed website, to keep yourself and your market aware of who you are and what you have to offer.
• Consistently market your services primarily to those who can refer business to you. Most of my assignments stem directly from referrals from other CPA firms. Depending on your particular practice, you may target other persons of influence, such as lawyers, bankers, consulting firms, and industry leaders.
• Commit yourself to excellence and quality in all you do. Deliver top-quality professional service on each assignment. As you develop a strong reputation for providing cost-effective and client-centered assistance, your referral-base will widen.
• Be persistent, and think long-term. Stick to the above basics, continually refining your firm identity and improving your marketing pieces and referral sources. Adopt a continuous-learning mindset, and use each client assignment along with self-study courses, research, seminars, and other means of developing your knowledge, talents, and skills.

Technology Tools for the Solo Practitioner

Take a look at Terry Brock's blog for news straight from the CES show

There's a lot of exciting news coming from this week's Consumer Electronics Show in Vegas. Terry Brock, a professional speaker and writer, is providing written and video posts to his Achieve Your Success blog. Here's an example:

"...If you do a lot of presentations with PowerPoint you know how boring they can become. “Death by PowerPoint” has become a mantra in today’s corporate world and you need something to help you stand out. One tool that is now on the market from Serious Magic is called Ovation. This product works directly with PowerPoint (you have to have PowerPoint for Ovation to work) by taking your existing PowerPoint presentations and animating them, and making them look like graphics you’d see on television. The system is incredibly easy as you just click on a PowerPoint presentation and drag it into Ovation. Once there you can click on several pre-designed templates for animated backgrounds, moving objects and more. The retail price is $99.00 and it can help your presentations stand out in a crowded world. You can avoid “Death by PowerPoint” and help to bring your presentations alive with a program like Ovation."

I first met Terry Brock about ten years ago at one of the Year-End Technology Update sessions he presented for the Georgia Society of CPAs. A dynamic, entertaining, and brilliant speaker, Terry helped me and hundreds of other Georgia CPAs stay current with our annual CPE requirements...and informed about the latest technology tools and tips for accountants and consultants. Since attending several of these interesting and informative sessions, I've become a regular visitor to Terry's website and blog, both of which offer a great deal of material useful for my practice.

Help Your Clients Fight Fraud

Too many small and mid-sized organizations are prime candidates for being victimized by employee fraud.

Here's a typical scenario:  The company has delegated all its accounting and reporting duties to its internal CFO, controller, or chief accountant. No oversight is placed over this individual. That's all it takes. The trusted and capable manager now has the opportunity to steal from the company and then cover-up things via "creative" accounting.

I've seen it way too many times, usually when the victim company or its attorney calls me in to help quantify the damage and to assist with the criminal or civil litigation. I imagine you've observed the same in your practice.

How can we, as solo accountants, help clients protect themselves from embezzlement by their opportunistic, dishonest financial managers. Here's an idea: Propose an ongoing monthly or quarterly engagement in which you're retained to perform various antifraud-oriented services such as the following:

• Obtain and read the current and prior period financial statements and information submitted to your client by the financial manager. Compare this with the reports you receive directly from the financial manager, then ask for the underlying general ledger, subsidiary ledgers, account reconciliations, bank statements, cancelled checks, payroll tax returns, and support for all general journal entries.
• Scan the the summary and detailed information, looking for anything unusual. Make a list of these items as well as various questions, that when asked of the financial manager, let them know that a trained professional is looking at their work. An example of such a question might be, "Why is the balance in accounts receivable on your month-end financial statement so much larger than the figure shown on the detail aging report?"
• Hold periodic Q&A sessions with the financial manager, sometimes on a surprise basis. Ask them about the items on the listing you prepared in the previous step. Be extra alert for any responses that don't appear reasonable and/or body language which might indicate deception. Follow-up these observations as agreed-to by you and your client. Report all significant findings to the client.

If nothing else, these procedures should send a loud, clear message to the potential fraudster that should he or she embezzle from their employee, there's now a higher chance their misdeeds might be detected. This alone will tend to deter them from stepping over the bounds of right behavior.

How such an engagement is communicated to the financial manager, and how you interact with the individual as the work is conducted will impact the attitude and level of cooperation of the manager. Depending on the situation, the business owners might simply tell the manager, "To help us strengthen our internal controls, we've retained an outside expert to provide another set of eyes and ears over various aspects of the business, including the accounting area." Tactfulness is important, so as to not convey a lack of trust or confidence in the finance manager.

Don't forget to spell out all aspects of the assignment in a well-written engagement letter to be signed by you and the client. There's no way you can prevent or detect all fraud that might exist in your client's operation, so be sure to include adequate disclaimers in the letter.

Engagement Staffing: Using Client Personnel

A "win-win-win" solution!

One of the best steps a solo or small firm accountant/consultant can take is to maximize the integration of their clients' internal staff on various aspects of work engagements. This is especially important for the sole-practitioner who has few, if any, employees of his/her own. When a client employee is properly woven into the staffing mix the following benefits can be expected:

• The client employee gains valuable, specialized work experience that might not otherwise be available in his/her routine job function. She gets to work with and be mentored by the independent consultant on an important, interesting project. Her "stock" goes up as she becomes more valuable to her current...or future employer. In my experience, client employees have generally been very eager to assist in a variety of knowledge-building ways on most projects.
• The client enjoys a double benefit. As the involved employee's knowledge and experience is expanded, that person becomes more valuable to the company and is better equipped to help the client in the future. The client also should benefit from reduced fees on the engagement since time devoted on the project by the lower-cost employee will help reduce fees paid to the external consultant.
• The practitioner benefits. The overall engagement process and work-product ought to improve since the involved client employee will presumably have valuable knowledge of the client's industry, processes, culture, and its people. This should allow for a more cost-effective engagement. While the overall fee paid to the practitioner may decrease, the profitability ratio should be increased. Multiply this over several projects, and the firm's service capacity and profits will improve. Client relations ought to be enhanced as the accountant/consultant exhibits this client-centered mindset.

Are you taking full advantage of the opportunity to utilize your clients' employees as part of your services? If not, I encourage you to take a close look at each current and future project and try to find at at least one internal staff person to enlist. Talk it over with your client and the selected employee...then move ahead!

Outsourced Accounting is Surging

"You'd better watch out. Companies are looking for you… big companies. And they want to hit you with some money… big money."

"Why you? Because you're an accountant. You know money. Finance. Numbers. Technology. You can be trusted with somebody else's payroll. Their accounts receivable. Their payables. Their purchasing, revenue accounting, general accounting. These are the activities that big companies most often outsource, and lately they've been outsourcing like never before."

Read more of Rick Telberg's blog comments...at CPA Trendlines.

Fighting the War on Fraud

Accountants Need Help Fighting War on Fraud

The founder and chairman of the Association of Certified Fraud Examiners (ACFE), Joseph T. Wells, CFE, CPA, fears our nation’s CPAs are not trained to fight what may seem to be an intractable battle against accounting fraud.

"As a group, CPAs are neither stupid nor crooked. But the majority are still ignorant about fraud, " explains Wells, considered an international authority on the topic. "That’s because for the last 80 years, untrained accounting graduates have been drafted to wage war against sophisticated liars and thieves. And as multi-billion dollar accounting failures have shown, it hasn’t been much of a fight." Read more...

Are you interested in becoming a CFE? Read this excerpt from the ACFE website:

"Globally preferred by employers, the Certified Fraud Examiner (CFE) designation denotes proven expertise in fraud prevention, detection, deterrence and investigation. Members with the CFE credential experience professional growth and quickly position themselves as leaders in the global anti-fraud community. In fact, the ACFE’s 2004 Compensation Guide for Anti-Fraud Professionals reveals that CFEs earn 28% more than non-CFEs in similar jobs."

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SOX 404: Build a Niche Practice

If you've not yet jumped on the Sarbanes-Oxley Section 404 bandwagon, now may be the time. Non-accelerated filers, those publicly-held companies with less than $75 million of market capitalization, will be working overtime between now and 2007, the year by which they must be SOX-compliant. Accelerated filers are now in their second year of their SOX requirements. Due to already-stretched internal staffing situations, internal control consultants will be in high demand. There's such a great deal of opportunity for freelance accountants and consultants in these arenas, a full-time niche practice could be a good growth strategy for enterprising practitioners.

In addition to pursuing SOX assignments in publicly-held companies, I believe it will be productive to go after many of the mid-sized and larger private businesses (and not-for-profit organizations) for internal control assignments. Owners and managers of these entities should be receptive to scaled-down, "SOX-like" initiatives to help them identify and remediate control deficiencies and related risks in their operations. For example, well-designed and executed $10,000 to $50,000 consulting engagements could pay big dividends for your clients. Your assistance will likely help to reduce fraud, financial reporting, and other risks. This can benefit clients by increasing comfort level (and in turn, overall business value!) of their lenders, investors, M&A partners, auditors, and other interested parties.

News Alert:  COSO just last week finally released its long-awaited financial reporting guidance for smaller public companies. This is a must read for those involved in SOX consulting.

Your Time: It's Your Inventory

My career began in public accounting, five years with a Big-Eight firm and two more with a Top-25 Atlanta local firm. What did I appreciate most about making the change to private industry and then to independent consulting? Was it the reduction of long hours or travel? No...it was that I no longer had to complete bi-weekly time reports for each hour worked, and then have to explain why my actual hours and utilization (% of billable time to total time) didn’t line up perfectly with what had been planned for the year. Can you relate? I never fully realized what a chore this was until I no longer had to religiously report my every move.

As a budding sole-practitioner, I certainly tracked my billable hours...so I could bill everything possible. There was no thought whatsoever, however, to keeping up with development or administrative time, or for time not worked because of vacation or holidays. Also, I stayed away from a reporting system that even remotely looked like a traditional time report; instead, my preferred system was more of a “back-of-a-napkin” methodology.

My non-serious view of time tracking changed when I went to perhaps the most useful CPE conference I’ve ever attended. This was the AICPA Small Practitioner Conference, held in San Diego over three days in 1989 (or thereabouts). One of the breakout sessions I attended was entitled, “Your Time: It’s Your Inventory!” Suffice it to say that my eyes were opened. For the first time, I finally truly understood why time-tracking and utilization planning and management is so important in a professional services firm, even when the only professional spending time is “me.”

I immediately designed and began using a detailed time reporting system. Once again, I was back-in-the-saddle, meticulously keeping up with my every move, and studying it on a daily, weekly, monthly, and yearly basis. How sad! No, in fact, this was very good for my practice. I began to view my time as though it were inventory, and tried to manage it just as closely as I advised clients that had tangible inventory in their businesses. In other words, I wanted to know how much time I had, where it went, and was it adequately protected against slow “turns” and pilferage. You get the picture, don’t you? I became somewhat obsessed with the level to which I planned, tracked, and analyzed the usage of time in my practice. This went on for at least three years. I finally relaxed things a bit, and now have a system that is not as detailed, but nonetheless very effective for my needs.

QuickBooks...or Microsoft?

I attended yesterday's Intuit-sponsored "Maximizing Your Practice with QuickBooks 2006" seminar, along with about 200 other solo and small-firm practitioners. Held in Atlanta, this was one of the sessions of Intuit's "QuickBooks 2006 Accountant Update Seminars" being presented at various cities around the country.

Having used QuickBooks in my own firm for over ten years, and after helping many clients install and customize it for their businesses, I was already sold on its cost-effective, user-friendly functionality. This seminar solidified my view that QuickBooks is truly a bargain. For more info: QuickBooks 2006 Solutions for Accounting Professionals

Now, what about the new Microsoft product...MS Office Small Business Accounting 2006? We can be sure this will be an excellent tool for us and many of our clients. I'll definitely be taking a closer look at its features and capabilities, especially given the heavy dependence on MS Outlook, MS Excel, and MS Word in my practice. Microsoft is undoubtedly hoping accountants like (and our clients!) will shift allegiance from QuickBooks. Time will tell. For more info: A Report on Office Small Business Accounting (SBA) from the QuickBooks' Consultant's Perspective-Part 1 http://www.sleeter.com/articles/1126049162

Finally, I must pay a compliment to Joe Woodard, of Creative Financial Software, a Georgia-based QuickBooks training and consulting firm. As the presenter of yesterday's seminar, he did a tremendous job of sharing a lot of practical, helpful information in a fast-paced and entertaining way. Great job, Joe!

Are You a True Professional?

Periodically, each of us should evaluate our work routines, practices, and attitudes, and ask ourselves, "Am I a true professional?"

To answer correctly...we must not only be honest with ourselves, but also know with certainty what true professionalism really is and how it's practiced in our profession.

To help with the latter of these two requirements, I highly recommend the book, True Professionalism, in which the author, David H. Maister, describes "real professionals" as those who:

• Take pride in their work, and show a personal commitment to quality
• Reach out for responsibility
• Anticipate, and don't wait to be told what to do--they show initiative
• Do whatever it takes to get the job done
• Get involved and don't just stick to their assigned role
• Are always looking for ways to make things easier for those they serve
• Are eager to learn as much as they can about the business of those they serve
• Really listen to the needs of those they serve
• Learn to understand and think like those they serve so they can represent them when they are not there
• Are team players
• Can be trusted with confidences
• Are honest, trustworthy, and loyal
• Are open to constructive critiques on how to improve
• All of the above can be summarized in one phrase: Real professionals care.

True Professionalism is essential reading, as are all of Maister's books, including Managing the Professional Service Firm, The Trusted Advisor, and Practice What You Preach. He's also authored numerous articles and other writings, many which are posted on the David Maister website. For example, he co-authored an article The Laws of Service Businesses. Take a look at it right now, then rush to your local bookstore and pick-up several of his excellent books.

AICPA Encourages CPA Bloggers

In researching ways to help make this blog more useful to solo-practitioner accountants and consultants, I came across an article published in the June '05 issue of the AICPA's Journal of Accountancy. Here are a couple of excerpts from the "Would You, Could You, Should You Blog?" article, authored by Eva B. Lang, CPA/ABV, ASA:

"Interest in blogs as an information-sharing tool with many business opportunities has been growing. Fortune magazine called blogging one of the Top 10 Tech Trends in 2004 and the February 2005 Harvard Business Review cited it as one of the breakthrough ideas for 2005."

"CPAs may find value in a blog as a knowledge management tool. Firms can use internal knowledge blogs to help current employees work more efficiently and to get new hires up to speed quickly. As a repository of 'institutional memory,' knowledge blogs can remind current employees and procedures, link to documents employees' need to read, and document best practices."

Read the entire article at http://www.aicpa.org/pubs/jofa/jun2005/lang.htm

Four Effective Internal Controls

Many small businesses suffer from weak internal accounting controls. This is mostly due to the lack of segregation-of-duties in these companies, especially those relying on a single bookkeeper or controller to handle all accounting tasks. Such firms are especially vulnerable to employee theft, false financial reporting, and other business threats. Here are four controls I often recommend to help mitigate the control voids found in these situations:

1. Require dual signatures on all checks above a specified dollar amount.
2. Have the owner receive monthly bank statements unopened, and then review all contents for unusual items.
3. Enlist someone other than the bookkeeper to reconcile bank statements.
4. Insist on timely-prepared monthly financial statements and subject them to a simple “inquiry and analytical review” process to be conducted either by the owner (if he/she is adept in accounting matters) or an experienced, independent accountant.

Clean Up Those Messy Books!

Extremely poor accounting records are a major problem for many businesses. Inaccurate and delinquent financial statements and other information can create havoc within a business. Making good business decisions is difficult when you have little confidence in the financial data you receive. Left uncorrected, the effects of messy books will take an increasingly negative toll on any company. You should act now if your organization is suffering from this situation. Hear are two suggestions:

1. Hire a stronger accountant to correct the problem, or retain outside professional assistance on an interim or part-time basis to get things under control;
2. Don't worry right now with cleaning-up prior months. Focus first on generating an accurate balance sheet for them most recent month-end. For each subsequent month, demand timely and accurate balance sheets and income statements. Later, it may be necessary to correct the accounting for earlier periods, but at least you'll now have the financial data needed for current decision-making.

Embezzlement: When? Who? Why?

It's not uncommon to hear business owners say something like, "My controller (or bookkeeper) would never steal from us. I trust her completely." Entrepreneurs are generally not aware of just how vulnerable they are to various forms of employee fraud. Here are sample answers to the "When, Who, Why" questions:

When: When there's little chance of detection...due to weak controls.

Who: An otherwise "honest" person, experiencing serious financial problems.

Why: They rationalize by saying, "It's not that much; I'll pay it back," or a discontent employee might say, "The company owes it to me."

Tips for the Troubled Company

You’ve always taken pride in paying your company’s bills on time. Your employees have never worried about receiving their payroll checks on Friday. The bank has always been eager to loan you more money. Things are different now, however. Cash is tight, and everybody’s anxious: suppliers, staff, the bank…and you. How should you respond?

Take action early. Don’t waste time! Take action as soon as your “gut” tells you the business might be suffering. Identify the root causes of the cash shortages, then quickly formulate and implement corrective steps. Delays will erode critical goodwill with vendors, employees, and bankers…and postponement of sound management action can result in complete business failure.

Seek competent legal help. An experienced bankruptcy attorney should be consulted before you have extensive discussions with nervous creditors. The lawyer can help you formulate proper responses to increasing pressures from suppliers and lenders who will demand precious cash and collateral needed by your business.

Communicate with creditors and employees. Decide which creditors and staff are critical to your company’s future success, and provide them with periodic status reports about the troubled situation. By keeping these interested parties informed of the steps being taken to benefit their interests, you’re more likely to obtain cooperation during the crisis period. A word of caution: Don’t make promises you can’t keep!

Stop the cash bleeding. Insufficient cash flow can easily cause a company to fail. To save a financially-troubled business, quick steps must be taken to preserve cash. Develop and use a 13-week and 12-month cash forecast tool (using Microsoft Excel) to plan and control cash receipts and disbursements. Maximize cash by following these suggestions:

• Develop detailed weekly/monthly cash forecasts
• Reduce costs
• Defer A/P
• Accelerate A/R collections
• Liquidate excess inventories
• Sell unneeded assets
• Discontinue unprofitable operations
• Obtain new debt or equity funding