(Photo courtesy of socialmonsters.org)
An accounting probe that began with the discovery of underestimated construction costs may end up costing Toshiba as much as $417 million, The Financial Times reports. Coming less than two years after the disclosure that the company had overstated its medical earnings over a six-year period, the scandal has Toshiba’s investors anxious, pushing shares down by a fifth and illustrating how expensive accounting errors can be. A Bloomberg BNA survey of in-house tax and accounting professionals found that inaccurate reporting cost American companies almost $7 billion in IRS civil penalties in 2013. Fortunately, Bloomberg was also able to identify today’s biggest errors underlying such bookkeeping mistakes, pointing toward strategies you can use to avoid your company becoming the victim of an accounting scandal.
Double-Check for Data Entry Errors
One leading culprit Bloomberg identified was manually entering incorrect data. Such errors are inevitable, which means you need a system in place to catch them. According to the Common Cents blog, the most common mistakes fall into four major categories, which can be summarized as transposing data, entering data in the wrong category, failing to enter a transaction, and posting an incorrect entry such as entering a number in the right place with the wrong amount.
Palermo suggests two shortcuts that can help catch these types of errors. Transposition errors will always result in multiples of 9 appearing somewhere, so for instance, if the difference between your debits and credits is off by 99, you need to go back over your transactions looking for an incorrect entry. Another strategy for when you can’t find an error immediately is to create a temporary Miscellaneous Suspense/Clearing account. Use this to reclassify the amount with a running balance so you can finish working, then come back after you’ve solved the problem and readjust to zero out the account.
Save Files to Secured Devices
Eighteen percent of those Bloomberg surveyed reported problems stemming from employees saving company data to unsecured personal devices, says Bloomberg’s Dean Sonderegger. Computer Weekly recommends several steps companies using BYOD policies can take to protect themselves from this type of problem.
Suggestions include communicating a clear security policy to new employees, placing sensitive data in a security “sandbox” where it can be wiped if needed without affecting other information on the device, and installing antivirus software on all devices.
Use Accounting-Specific Software
Another common problem stems from relying on spreadsheet programs such as Excel for accounting. This makes it easy to accidentally delete customized company accounting formulas. This mistake can be avoided by using software specifically designed for accounting or tax preparation instead of using spreadsheet software. The SurePayroll blog provides additional reasons why using accounting software is a best practice, such as organizational efficiency, ease of input and accurate tracking of company financial history.
Work on a Secure Network
Another frequent source of accounting mishaps is employees entering data from insecure networks such as coffee shops. Two keys to preventing this problem are implementing a company policy against non-secure public Wi-Fi use and offering employees access to a virtual private network. The FCC recommends additional steps for protecting wireless networks, including turning encryption and firewalls on, changing default passwords and network names, turning network name broadcasting off, and using MAC address filters.
