In today’s volatile economic climate, organizations face mounting pressures that can increase the risk of fraudulent activities. Auditors play a pivotal role in identifying and mitigating these risks through comprehensive fraud risk assessments and tailored audit procedures.

Fraud triangle

Three elements are generally required for fraud to happen. First, perpetrators must experience some type of pressure that motivates fraud. Motives may be personal or come from within the organization. Second, perpetrators must mentally justify (or rationalize) fraudulent conduct. Third, perpetrators must perceive and exploit opportunities that they believe will allow them to go undetected.

The presence of these three elements doesn’t prove that fraud has been committed — or that an individual will commit fraud. Rather, the so-called “fraud triangle” is designed to help organizations identify risks and understand the importance of eliminating the perceived opportunity to commit fraud.

Economic uncertainty can alter workers’ motivations, opportunities and abilities to rationalize fraudulent behavior. For example, an unethical manager might conceal a company’s deteriorating performance with creative journal entries to avoid loan defaults, maximize a year-end bonus or stay employed.

Fraud vs. errors

Auditing standards require auditors to plan and conduct audits that provide reasonable assurance that the financial statements are free from material misstatement. There are two reasons an organization misstates financial results:

1. Fraud, and
2. Error.

The difference between the two is a matter of intent. The Association of Certified Fraud Examiners (ACFE) defines financial statement fraud as “a scheme in which an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports.” By contrast, human errors are unintentional.

External audits: An effective antifraud control

While auditing standards require auditors to provide reasonable assurance against material misstatement, they don’t act as fraud investigators. An audit’s scope is limited due to sampling techniques, reliance on management-provided information and documentation, and concealed frauds, especially those involving collusion. However, auditors are still responsible for responding appropriately to fraud suspicions and designing audit procedures for fraud risks.

Professional skepticism is applied by auditors who serve as independent watchdogs, assessing whether financial reporting is transparent and compliant with accounting standards. Their oversight may deter management from engaging in fraudulent behavior and help promote a culture of accountability and transparency.

Auditors also perform a fraud risk assessment, which includes management interviews, analytical procedures and brainstorming sessions to identify fraud scenarios. Then, they tailor audit procedures to focus on high-risk areas, such as revenue recognition and accounting estimates, to help uncover inconsistencies and anomalies. Fraud risk assessments can affect the nature, timing and scope of audit procedures during fieldwork. Auditors must communicate identified fraud risks and any instances of fraud to those charged with governance, such as management and the audit committee.

Additionally, auditors examine and test internal controls over financial reporting. Weak controls are documented and reported, enabling management to strengthen defenses against fraud.

To catch a thief

External auditors serve as a critical line of defense against corporate fraud. If you suspect employee theft or financial misstatement, contact us to assess your company’s risk profile and determine whether fraud losses have been incurred. We can also help you implement strong controls to prevent fraud from happening in the future and minimize potential fraud losses.

The month-end close is a pain point for many small to midsize businesses. While internal accounting teams often aim to wrap up the close within three days, a recent survey found that half the respondents actually take six days or longer to close the books. What can your organization do to help streamline this process? Leveraging cloud-based technology tools like QuickBooks® can be a game changer.

Why closing the books matters

Closing the books — the process of finalizing all accounting records for a specific period — is more than a compliance chore. It provides insight into a company’s financial health by ensuring assets and liabilities are accurately posted, revenue and expenses are matched in the right periods, and any errors are quickly caught and corrected. A consistent, timely closing process can provide reliable data for:

• Tracking profitability by product or department,
• Maintaining cash flow visibility,
• Budgeting and strategic planning,
• Preparing tax returns and financial statements, and
• Strengthening internal controls and preventing fraud.

Conversely, delays in closing the books can result in operational inefficiencies, misinformed business decisions, and overlooked growth opportunities.

Best practices for QuickBooks users

Using QuickBooks’ features, you can speed up the closing process without compromising financial reporting quality. Establishing a structured, repeatable workflow is key. Rather than improvising each month, create a standardized closing checklist that includes these nine steps:

1. Reconcile bank and credit card accounts. Every reliable close begins with accurate account reconciliations to help prevent duplicate, missing and fraudulent transactions. However, this step can be time consuming and frustrating, especially for businesses with significant transaction volume. QuickBooks can streamline reconciliation by importing and categorizing transactions automatically through its bank feed feature. Configuring bank rules further reduces manual coding and improves consistency.
2. Review open receivables and payables. Unpaid invoices and overdue bills distort cash flows, profitability, and amounts reported on your balance sheet. QuickBooks can generate aging summaries for accounts receivable and accounts payable. Review the receivables summary for overdue invoices, then follow up with customers and determine whether any accounts are uncollectible. Similarly, scrutinize the payables summary to verify all bills have been received and posted, and check for duplicate entries. Understanding what you owe and when helps maintain strong supplier relationships and avoids surprises in future periods.
3. Conduct physical inventory counts. For businesses with inventory, errors in stock levels can lead to misstatements in the cost of goods sold and gross profits. Performing a physical inventory count at month end — and reconciling it to QuickBooks data — is a best practice that ensures inventory valuation remains accurate. QuickBooks’ built-in inventory tools or integrations with third-party platforms can provide real-time visibility into stock levels and streamline this process.
4. Record fixed assets and depreciation. Any major purchases made during the month that qualify as fixed assets — such as equipment, furniture, vehicles, and leasehold improvements — must be capitalized on the balance sheet, not immediately expensed on the income statement. Set up depreciation schedules based on the acquired assets’ useful lives. Also, remove any sold or retired assets from the books. While QuickBooks doesn’t automate depreciation, you can track depreciation schedules in spreadsheets or integrate third-party tools.
5. Post prepaid expenses and accruals. Accrual accounting requires that revenue and expenses be recorded when earned or incurred, not when cash changes hands. This requires journal entries for prepaid assets and accrued expenses. QuickBooks allows you to create custom journal entries and automate recurring items to reduce manual effort. Recording these entries monthly helps produce a more accurate, complete picture of the business’s interim financial performance.
6. Verify payroll and benefits. Even when using a third-party payroll provider, it’s essential to reconcile payroll-related entries each month. This includes verifying gross wages, employer-paid taxes and benefit contributions. QuickBooks Payroll can automate much of this process, but comparing payroll reports to general ledger entries is prudent to confirm accuracy and catch any inconsistencies early.
7. Analyze preliminary financial reports. With QuickBooks, you can quickly run a preliminary profit and loss statement, balance sheet, and statement of cash flows. Compare these reports to prior periods, internal budgets or forecasts, and/or industry benchmarks to identify anomalies. Investigate unusual fluctuations for coding errors, missing transactions, or unexpected balances, then make any necessary corrections. Keeping up with adjusting entries every month facilitates year-end financial reporting and tax preparation.
8. Lock the books. Once you’ve made all necessary adjustments and entries, QuickBooks allows you to “close the books” with a password to prevent changes after the period ends. This functionality, accessed through the settings menu, prevents backdating or editing past transactions, thereby maintaining the integrity of finalized records.
9. Document the closing process. The final element of a well-run close is documentation. Save the month-end checklist, supporting reconciliations, journal entries and exception notes in a shared folder or attach them directly to QuickBooks transactions. This adds transparency and ensures continuity if there’s turnover in your accounting department.

Crossing the finish line with confidence

The month-end close doesn’t have to be a source of stress. By leveraging QuickBooks’ functionality and implementing a structured closing process, your business can significantly reduce the time and effort required to close the books while improving accuracy and insight. Contact us to help set up efficient, reliable closing procedures for your business.

For many businesses, accounts receivable (AR) are more than just a line item on the balance sheet. This account provides a key indicator of potential cash flow, customer relationships and overall financial health. So proactive AR management is critical. The AR aging report has long been a cornerstone of expediting collections and reducing credit risk, but it’s taken on greater significance with the implementation of new accounting rules for recognizing credit losses.

Digging deeper into receivables

The AR aging report provides a structured breakdown of all outstanding customer invoices. Rather than simply listing balances owed, it categorizes AR based on how long each invoice has remained unpaid. The following time-based “aging buckets” are typically used:

• 0 to 30 days (current),
• 31 to 60 days,
• 61 to 90 days, and
• Over 90 days.

This breakdown helps management evaluate trends in customer payment behavior, identify chronic late payers, and assess how credit policies are performing. The information can be used to prioritize collection efforts and determine when receivables should be written off. Management also might use it to modify overall credit practices (for instance, offering early-bird discounts or electronic payment methods to encourage faster payments) or tighten credit policies for certain slow-paying accounts.

Optimizing cash flows

By revealing how long invoices have been unpaid and identifying customer payment trends, the AR aging report helps businesses forecast future cash receipts. This can help management more accurately:

• Budget operating expenses,
• Determine the need for short-term borrowing or credit lines, and
• Plan investments or capital expenditures.

For instance, if a business sees that 40% of its receivables are older than 60 days, management can anticipate cash shortages in the next cycle and act preemptively. They may decide to delay certain discretionary expenditures or reevaluate vendor payment terms to maintain liquidity.

Using aging buckets to estimate write-offs

Starting in 2023, private entities that follow U.S. Generally Accepted Accounting Principles (GAAP) are required to implement new accounting rules for reporting credit losses on financial assets, including trade receivables. (The rules went into effect for most public companies in 2021.) The updated guidance requires companies to estimate an allowance for credit losses based on current expected credit losses (CECL) at each reporting date. The net amount reported on the balance sheet equals the amount expected to be collected. The CECL model essentially requires companies to estimate write-offs sooner than in the past.

Under prior accounting rules, a credit loss wasn’t recognized until it was probable the loss had been incurred, regardless of whether an expectation of credit loss existed beforehand. Under the CECL model, a loss allowance must be estimated based on historical information, current conditions, and reasonable and supportable forecasts. This estimate is often derived using historical default rates from aging buckets and adjusted for current and forecasted economic conditions. AR aging reports provide the historical and current data necessary to project the probability of default for various customer segments and invoice-age groups.

Estimated credit losses are recorded on the income statement as bad debt expense, directly reducing net income. Financial statement footnotes may also include detailed aging data and descriptions of how the loss estimate was developed, particularly if receivables represent a significant portion of the company’s assets.

It’s important to note that the Financial Accounting Standards Board is currently working on proposed guidance that, if approved, would allow private entities to use simpler assumptions to estimate credit losses on short-term receivables. However, regardless of whether the proposed simplification measures are approved, the AR aging report remains an essential tool. It helps quantify expected losses with or without complex forecasting.

A strategic management tool

QuickBooks® and many other accounting software platforms can generate real-time, customizable AR aging reports that integrate with customer relationship management systems for seamless tracking and follow-up.

If you’re unsure whether your current processes are CECL-compliant or you need assistance leveraging aging data to strengthen collections, credit policies, and budgeting decisions, we’re here to help. Contact us to maximize the potential of your receivables data.

With new tariff structures looming and global trade relationships in flux, businesses face rising uncertainty in supply chain costs and inventory planning. As countries iron out the details of future U.S. trade agreements, companies must proactively manage their inventory to avoid margin erosion and supply disruptions. Here are six smart strategies to help safeguard your operations.

1. Analyze your supply chain

Start by identifying where your inventory items originate — not just your direct suppliers, but the true sources of raw materials and components. Many small businesses purchase through intermediaries, such as distributors or service centers, making it difficult to spot exposure to higher tariff zones. Also, review tariff codes for your imports to ensure correct classification and identify potential opportunities for reclassification or exemptions.

After determining where items originate, evaluate their criticality, cost, and lead times. This assessment reveals your level of risk and highlights where disruption would have the greatest financial impact. A detailed supply chain map gives you the data needed to make informed decisions, whether diversifying suppliers or adjusting stock levels for sensitive items.

2. Identify alternative vendors

If tariffs threaten your current sourcing strategy, explore alternative suppliers in different regions or even domestically. But don’t make changes solely based on cost; ensure new suppliers meet your standards for quality, reliability, and speed.

If you rely on one or two suppliers for critical items, identify a mix of potential suppliers in different geographical regions. Having multiple partners lined up provides flexibility if one region becomes economically unfavorable. For example, a contractor who relies on imported electrical components could benefit from developing relationships with U.S.-based distributors, even at a premium, to ensure business continuity. This dual-sourcing approach may add resilience and open the door to competitive pricing negotiations.

3. Strengthen supplier relationships

Solid supplier partnerships are more valuable than ever. Transparent communication helps you stay ahead of inventory delays or pricing shifts. Suppliers may also provide early warnings on tariff impacts or offer better terms to long-standing customers. Building trust now can give you access to more favorable pricing, priority fulfillment, or flexibility in challenging times.

Don’t just talk business — build strategic alliances. Offer forecasts, discuss contract extensions, and explore vendor-managed inventory models for shared efficiency gains.

4. Reevaluate purchase timing and inventory volume

Keep close tabs on your supply chain partners. If tariff increases appear imminent, consider purchasing key inventory before they take effect. While this ties up working capital, strategic stockpiling can save costs and protect against supply disruptions. Prioritize high-impact items with long lead times or few substitutes. However, consider increased storage costs and potential obsolescence when expanding inventory levels.

Another option is locking in long-term pricing contracts. This can be especially effective if you negotiate fixed rates or volume-based discounts.

5. Review pricing and cost control

With uncertainty swirling, many businesses hesitate to raise prices in the hope that the “trade wars” will cool off soon. But absorbing higher input costs indefinitely can strain your cash flow. Monitor competitor pricing strategies and be transparent with your customers if adjustments are needed. Consider tiered pricing models, pass-through clauses, or surcharges tied directly to tariff fluctuations to maintain trust.

Simultaneously, revisit your internal cost structure to help preserve margins. This could include streamlining packaging, reducing waste, optimizing warehouse layouts, and renegotiating freight contracts.

6. Embrace automation for resilience

Bringing more production or fulfillment in-house may insulate you from global risks, but labor shortages and costs are valid concerns. Automation and AI tools can offer a competitive edge by increasing output without a proportional rise in headcount. Even smaller-scale investments, such as automated inventory tracking or demand forecasting software, can reduce manual errors and improve agility.

Avoid knee-jerk reactions

Whatever course you take, ensure it’s guided by data and long-term business goals, not impulse. We can help you create financial models that forecast the impacts of different scenarios and guide you toward cost-effective, sustainable decisions. Contact us for more information.

Big changes are happening! With our new brand and evolving values, we’ve outgrown our current space and found a location that truly reflects who we are.

New Address: 655 Metro Place South, Suite 450, Dublin, OH 43017

Don’t worry—we’re still conveniently located just a short drive from our Worthington location, and you’ll continue to receive the same great service you know and love. This move allows us to better support our team and enhance your experience.

Stay tuned for updates as we prepare for this exciting transition!