There is a big trendy word these days in business practices: “Transparency”. However, in the accounting field, transparency is not something new or trendy, it’s how we do our day-to-day jobs. Accounting is all about the numbers and how we got them. We have to be transparent in our financial reports and entries. Fudging the numbers is not only unethical, it also ends transparency.
Are you fudging your numbers?
I know it sounds silly, or you are gasping “Me? Never!”
But we all know that sometimes searching for a 10 cent error is more time consuming and frustrating than looking for a $1,000 error, and the easy fix is to edit or journal entry it out somewhere to the great abyss of the Trial Balance.
We may think “10 cents, who cares!”, but little numbers add up. Every 2 years your community accounting gets audited (if not, it should be). Well that 10 cents is now $1,000, from 2 years of editing: fudging .25cents or $5.00 here and there. As the auditors find your mistakes, little ones here and there, your integrity comes into question. Your accounting ethics, your business ethics – now that 10 cents is causing you more problems than it was worth, and taking that 2 hours to research and find the error doesn’t sound too bad.
Embezzlement is a very well-known occurrence in our Industry. To have even the slightest suggestion that ‘creative accounting’ is happening can be the death of your career and/or management company. It just puts a bad taste in everyone’s mouth. Fudging the numbers can be construed as such. Even if it is a few cents of an entry, it can open the door to this ugly accusation.
The CAM industry is very tight knit and competitive – news of possible fraud can destroy everything you have worked for. Fudging the numbers in your accounting may save time in the short term, but it can have a very high price in the long run.
Why do the numbers get fudged?
Most accounting personnel fudge numbers, not out of dishonesty, but simply because they do not know where to find or what to do with the discrepancy. It doesn’t matter if you use my number one CAM Accounting Software, or if you use a general accounting software like QuickBooks, knowing how to research a discrepancy is vital.
Another factor might be an association board who is not familiar with accrual accounting, and does not understand the monthly reports. Rather than taking the time to teach board members to properly read the financial statements, you might be tempted to tweak the numbers on the P&L to make your board happy.
I have even seen CPAs and other accounting professionals who do not have an understanding of how CAM accounting works cause changes that can be detrimental to the community’s accounting records. (This is why it’s important that your CPA/auditor have a strong understanding of CAM accounting standards)
Yet another culprit might be the software you are using for CAM accounting. I know of a software program that allows you to simply double click on a transaction and alter it, so you can make it read as you want, not as it is supposed to. That to me is a very scary and dangerous option. If you can alter the General Ledger at will, what about the integrity of the numbers at the end of the month – are they even right? How can you prove it? Forcing a balance sheet to be in balance does not make it right- are your numbers right in the Checkbook or is the bank statement correct? How would you really know? Banks do make mistakes. I see it every day.
There will always be a reason for a discrepancy. If you dig hard enough you will find the error. If all other options seem to be wrong, check your data. Sometimes, in electronic accounting, transactions can be lost. This is called data loss. You should always make backups of your information and keep hardcopy reports, at least until after a period is closed, just in case. If you do have a data loss issue and only one-side of the entry is showing – you can bet that it can be found by doing a little research and some hard work.
First line of defense: Your software
The accounting software you chose should have an audit trail that cannot be altered and edited. I worked as a night auditor for a hotel chain before computers were affordable, and we had to do all the books by hand. It used to take me all night to figure out my daily totals if there was a discrepancy. My calculator and tape was my best friend. Your audit trail is like your calculator tape: you can’t alter it or edit it. It is what the numbers total out too, nothing more or less. If my numbers didn’t balance: rooms sold vs. cash and credit card sales, I had to research each transaction until I found what was off. Sometimes I even had to knock on rooms and verify if they were vacant or rented if all else failed to reconcile. Now, that was research!
Today, computers do make our lives easier and take a lot of the work off your hands, but at the same time they can make fudging the numbers so easy. Double Click and edit. Presto! You’re in Balance! A month later that edit will come back to bite you. If you have office staff taking cash and doing data entry make sure editing is impossible for them and that an accounting professional is reviewing your financials at the end of each month. If there is a discrepancy, they will research and find it – if you have an audit trail with integrity.
A good policy is to allow only one person in the office to do journal entries. When you make one individual responsible, you will be surprised how long they will research to find just a few cents if their reputation and their position with the company is on the line.
There are also many accounting software programs out in the marketplace today that are not up to standards with the GAAP Accounting Standards, you have to be very careful of the software you obtain. A non-editable Trial Balance is one of the best ways to safeguard you from employees fudging numbers because of an entry error.
Most accounting software programs do not allow one-sided entries. If yours does, maybe re-thinking the Software you are utilizing is in order! You always have to protect the integrity of your Ledger. It goes back to your basic Accounting Principles - for every entry there is an offset entry.
Choosing an accounting professional
All accounting has the same bottom line 2+2 =4 and there is always a Debit and a Credit. Every entry has 2 sides, if you keep that in mind you can research and find the error. When choosing a bookkeeper or any other Accounting Professional, basic accounting rules apply. Your accounting professional should be able to locate that there is a discrepancy and their questions to you should be more along the lines of Where in the software do I do this transaction or pull this report, they should never ask you “should I debit or Credit this” or ask you what the number should be. If they are asking you questions like that – beware: your numbers will probably get fudged.
I always advise clients who don’t know an offset or what the bottom line should be to speak to their accounting professional, maybe it will cost up front if you don’t have an accounting professional on staff, but in the long run it will pay off. Your reputation is on the line.
CAM accounting offers no leeway in fudging the numbers; your financials are scrutinized in every aspect. You have to be the biggest advocate in not editing or forcing the numbers to balance. Your software’s company should offer you the best training and software support, so you can learn the software and be able to research any discrepancies efficiently.
Don’t be a “fudging” culprit.
This article is provided as a best practice for Community Management Accounting. Be advised that TOPS Software is not a certified public accounting firm. You should always take your CPA's advice for financial management.