The accounting profession is facing a talent crisis. The U.S. Bureau of Labor Statistics estimates that roughly 17% of U.S. accountants and auditors have left their jobs over the past two years, leaving some open positions unfilled for many months. And the American Institute of Certified Public Accountants (AICPA) estimates that 75% of CPAs have plans to retire within the next 15 years. There are also fewer new accountants entering the profession: Accounting undergraduate degrees were down almost 9% from 2012 to 2020, according to the AICPA.

Today’s shortage of accountants and high turnover rate in the profession are creating a need for modern accountants to broaden their skills and become more adaptable within their organizations. In fact, a growing number of public companies are disclosing gaps in accounting personnel as a material weakness in their internal controls over financial reporting that could potentially lead to fraud.

What can your business or nonprofit organization do to alleviate such concerns? One possible solution is to consider cross-training your accounting personnel beyond their current job descriptions.

Benefits abound

The most obvious benefit to cross-training is having a knowledgeable, flexible staff who can rise to the occasion when another staff member is out. Whether due to illness, resignation, vacation, or family leave, accounting personnel may sometimes be unavailable to perform their job duties.

Another benefit is that cross-training nurtures a team-oriented environment. If staff members have vested interests in the jobs of others, they likely will better understand the department’s overall business processes, leading to enhanced productivity and collaboration. Cross-training also facilitates internal promotions because employees will already know the challenges of and skills needed for an open position. In addition, cross-trained employees are generally better-rounded and feel more useful.

Additionally, the accounting department is at high risk for fraud, especially payment tampering and billing scams, according to the 2022 Report to the Nations by the Association of Certified Fraud Examiners (ACFE). If employees are familiar with each other’s duties and take over when a co-worker calls in sick or takes vacation, it creates a system of checks and balances that may help deter dishonest behaviors. Cross-training, plus mandatory vacation policies and regular job rotation, equals strong internal controls in the accounting department.

How to cross-train

The simplest way to cross-train is usually to have employees take turns at each other’s jobs. The learning itself need not be overly in-depth. Just knowing the basic, everyday duties of a co-worker’s position can help tremendously in the event of a lengthy or unexpected absence.

Whether personnel switch duties for one day or one week, they’ll be better prepared to take over important responsibilities if the need arises. Also, encourage your CFO and controller to informally “reverse-train” within the department. This will prepare them to fill in or train others in the event of an unexpected employee loss or absence.

For more information

If your organization is having trouble attracting and retaining accounting personnel, it’s not alone. Cross-training your current staff can mitigate accounting personnel concerns not only by preparing staff for the potential departure of a co-worker, but also by fostering a rewarding work environment that nurtures your staff’s career development. Contact us to help you develop an effective cross-training program that’s right for your business or nonprofit.

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Does your organization offer health care and retirement benefits for its employees? Benefit plans with 100 or more participants are generally required to have their annual reports audited under the Employee Retirement Income Security Act of 1974 (ERISA). Here’s some guidance to help plan administrators fulfill their fiduciary responsibilities for hiring independent qualified public accountants to perform audits.

Assess risks

Under ERISA, plan administrators are responsible for ensuring that employee benefit plan financial statements follow U.S. Generally Accepted Accounting Principles (GAAP) and are properly audited. Independent audits of plan financial statements help stakeholders assess whether they provide reliable information about the plan’s ability to pay retirement, health, and other promised benefits to participants. They also help management evaluate and improve internal controls over the plan’s financial reporting.
Administrators who hire unqualified plan auditors face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be personally liable to restore any losses to the plan.

Auditor qualifications

To demonstrate your commitment to quality and due care, it’s important to carefully review auditor qualifications, rather than simply accept the lowest-bid contract offer. Only after the technical evaluation is complete and the qualified respondents have been identified should the administrator review the audit fees quoted by the qualified respondents.

Evaluating auditor qualifications requires consideration of licensing and independence rules. Independent plan auditors don’t have any financial interests in the plan (or the plan administrator) that would affect their ability to render an objective, unbiased opinion about the plan’s financial statements. The DOL doesn’t consider a plan auditor to be independent if the audit firm or any of its employees also maintains the plan’s financial records.

RFP process

The American Institute of Certified Public Accountants (AICPA) provides recommendations on how to put together a comprehensive request for proposal (RFP) that can be used to evaluate bidders. Comprehensive RFPs provide detailed explanations of the audit engagement, including its objectives, scope, special considerations and expected timeline.

Once plan administrators weed out unqualified respondents to their RFPs, they should invite the finalists to present and discuss their proposal letters. It’s important to interview prospective auditors to assess relevant experience and training. Also, consider asking prospective auditors to provide a copy of their firms’ latest peer review report. A clean peer review report can provide additional assurance that a firm is applying best practices when auditing benefit plans.

When evaluating potential auditors, discuss the auditor’s work for other benefit plan clients and obtain references. Also, review the audit team’s continuing professional education records over the last three years to determine whether they possess recent benefit-plan-specific training.

For more information

Not every CPA is qualified to audit employee benefit plans. These engagements require specialized training and experience. Contact us to find out more about employee benefit plan audits.

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Timely financial information is critical to a successful business or nonprofit organization. In today’s dynamic marketplace, you may need to act fast to ward off potential threats and risks — and jump on new opportunities. But if you wait until your financial statements are released to react, you’ll likely miss out. Flash reports can provide real-time data that can help management respond to changing conditions.

Potential benefits

U.S. Generally Accepted Accounting Principles (GAAP) are considered by many people to be the gold standard in financial reporting. However, the process is complicated, so accounting departments usually take two to six weeks to send out GAAP financials. It takes even longer if an outside accountant reviews or audits the financial statements. Plus, most organizations only publish financial statements monthly or quarterly.

By comparison, weekly flash reports typically provide a snapshot of key financial figures, such as cash balances, receivables aging, collections, and payroll. Some metrics might even be tracked daily — including sales, shipments, and deposits. This is especially critical during seasonal peaks or among distressed borrowers.

Effective flash reports are simple and comparative. Those that take longer than an hour to prepare or use more than one sheet of paper are too complex. Comparative flash reports identify patterns from week to week — or deviations from the budget that may need corrective action. Graphs and tables can help nonfinancial people who receive flash reports interpret them quickly.

Critical limitations

Flash reports can help management proactively identify and respond to problems and weaknesses. But they have limitations that management should recognize to avoid misuse.

Most important, flash reports provide a rough measure of performance and are seldom completely accurate. It’s also common for items such as cash balances and collections to ebb and flow throughout the month, depending on billing cycles.

Companies generally use flash reports internally. They’re rarely shared with creditors and franchisors, unless required in bankruptcy or by the franchise agreement. A lender also may ask for flash reports if a borrower fails to meet liquidity, profitability, and leverage covenants.

If shared flash reports deviate from what’s subsequently reported on GAAP financial statements, stakeholders may wonder if management exaggerated results on flash reports or is simply untrained in financial reporting matters. If you need to share flash reports, consider adding a disclaimer that the results are preliminary, may contain errors or omissions, and haven’t been prepared in accordance with GAAP.

Tailoring the report

What information should be included on your organization’s flash report? This is a common question, but there isn’t a universal template that works for everyone. For instance, a consulting firm might focus on billable hours, a hospital might analyze the number of beds occupied, and a manufacturer might want to know about machine utilization rates. We can help you figure out what items matter most in your industry and how to create effective flash reports for your needs.

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It’s common for high-growth and seasonal businesses to have occasional shortfalls in their checking accounts. The reason relates to the cash conversion cycle — that is, it takes time to collect on customer invoices. In the meantime, of course, employees and suppliers want to get paid. The “cash gap” is currently getting wider for many companies. A recent study by CFO / The Hackett Group shows that the cash conversion cycle increased from 35.2 days in 2021 to 36.4 days in 2022. To add insult to injury, interest rates, and many operational costs are rising.

Fortunately, when cash is tight, small business owners can sometimes turn to receivables for relief. Here are some strategies for converting outstanding invoices into fast cash to pay bills.

Applying for a line of credit

A line of credit can be collateralized by unpaid invoices, just like you pledge equipment and property for conventional term loans. Banks typically charge fees and interest for securitized receivables. Each financial institution sets its own rates and conditions, but these arrangements generally provide immediate loans for up to 90% of the value of an outstanding debt and are typically repaid as customers pay their bills.

For example, a custom manufacturer had difficulty making payroll after two of its large clients delayed payment on outstanding invoices. A local bank gave the company a line of credit for $80,000. To secure the loan, the company was required to put up $100,000 in unpaid invoices as collateral and then repay the loan, plus fees and interest, once customers remitted payments.

Factoring receivables

Factoring is another option for companies that want to monetize uncollected receivables. Here, receivables are sold to a third-party factoring company for immediate cash.

Beware: Costs associated with receivables factoring can be much higher than those for collateral-based loans. And factoring companies are likely to scrutinize the creditworthiness of your customers. But selling receivables for upfront cash may be advantageous, especially for smaller businesses, because it reduces the burden on accounting staff and saves time.

For instance, a wholesaler faced cash flow issues because customers were paying bills between 60 and 90 days after issuance. As a result, the owner used a high-interest-rate credit card to make payroll and spent at least three days a month chasing down late bills. So, the owner sold off roughly $200,000 of the company’s annual receivables to an online factoring firm. This saved the company hundreds of personnel hours annually and allowed it to stop building up high-rate credit card interest expenses, while considerably easing cash flow concerns.

We can help

Before monetizing receivables, banks and factoring companies will ask for a receivables aging schedule — and most won’t touch any receivable that’s over 90 days outstanding. Before you write off your stale receivables, call customers and ask what’s happening. Sometimes you might be able to negotiate a lower amount — this might be better than nothing if your customer is facing bankruptcy. If all else fails, you might consider a commission-based collection agency or collection attorney.

Contact us to discuss your delinquent accounts receivable and other cash flow concerns. We can help you find creative solutions to convert receivables into fast cash.

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