Balance Sheets With Classes in QuickBooks

Balance Sheets With Classes in QuickBooks

My client - let’s call him Bob - is a mild-mannered guy, so when I heard him muttering swear words under his breath the other day, I had to ask what was wrong. “QuickBooks!” he exclaimed. “I wish it would export to Excel without wiping out everything I had set up in my financials last month!”   

A few days later, K2 Enterprises sent their April e-newsletter and a highlighted article about QuickBooks caught my eye. (K2 is a technology education firm based in Louisiana that puts on high-quality training for CPAs and others. I’ve taken two or three of their classes over the years and found them excellent.) Intuit has put out a report writer for QuickBooks. It’s called ISW, or Intuit Statement Writer, and it functions by pulling data out of QuickBooks into Excel. Before you get too excited, you should know that ISW is for QuickBooks Premier only, and it doesn’t work with versions prior to 2009. Still, if you spend hours every month formatting and proofing financial statements, upgrading QuickBooks and purchasing ISW at $149.95 may be worth it to you.

According to K2, ISW makes producing a balance sheet with classes in columns– similar to income statements by class – very easy. If you’d like to see a demonstration of how it works, you can go to http://www.youtube.com/watch?v=WOzPORNs-NA and view K2’s video. Why would you want a balance sheet by class? The most common instance in the nonprofit world is probably to separate restricted assets from unrestricted ones. A columnar balance sheet by class could also be useful for organizations with fixed assets in different locations, where locations were set up as classes, or for reporting operations and capital projects separately. You can probably think of an application for your organization.

When you report balance sheets this way, remember that in each class, assets should still be equal to liabilities plus net assets. Achieving that in QuickBooks will almost assuredly take you some extra time each month. As you do your daily work, you’ll need to remember to post accounts payable, accounts receivable, and all journal entries affecting balance sheet accounts to classes – something QuickBooks doesn’t normally prompt you to do. Then, as part of your month-end closing, run a balance sheet by class and verify that each class is in balance. Don’t expect that it will be, and allow enough time before any deadlines to correct errors.

Once you’ve gotten each class to balance, you’ll need to run an unclassified balance sheet and compare it to the total column on your classified one to see that they agree. This will ensure that the classes you’ve set up truly capture all of the balances in the GL.

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For Those Prone to Clutter

I’ve had a very busy winter with lots of client work in addition to writing this newsletter and getting my next project ready to announce to you. My desk top – the physical one – is beginning to show signs of incomplete projects, plans not yet realized, and working until interrupted by the next appointment. What does that look like? Clutter, in a word.

The worst clutter I think I’ve ever seen was many years ago during my accounting studies. I served for a couple of years on the finance committee of a local grass-roots organization (Let’s call it GRO). I was quite inexperienced; I didn’t know a journal from a subsidiary ledger. The bookkeeper at this GRO had always kept books by hand, but computers had arrived and it was time to make the switch. He was very nervous about the change, but was more or less told by the executive director and the more experienced members of the finance committee that he needed to do it.

At the time of the conversion, his office was neat but there were stacks of undone work here and there. He was clearly not caught up. I only hope he had some good help with the conversion and got some training in the new software – I don’t really know because I wasn’t involved in the process. What I do know is that about nine months later, IRS suddenly impounded about $10,000 from the GRO’s bank account for nonpayment of payroll taxes and the bookkeeper took a mental health leave of absence. He never returned to his job.

The executive director’s response was to engage a contract bookkeeper to come in and straighten things out. Her first challenge was organizing all the papers in the office, and she tackled the project with energy and skill. It wasn’t long before she found a cardboard box, about the size of a box of copy paper, full of unopened mail. In that box were months worth of IRS notices about the payroll tax problem.

To this day, I believe the bookkeeper was well-meaning:  he thought he was doing what he needed to do to manage cash when GRO didn’t have much. But he kept silent about it when he should have alerted the executive director and the finance committee so they could do their jobs and manage the situation. Not only were the consequences tough for the GRO, but the bookkeeper’s reputation suffered, too.

Ever since, I’ve understood clutter as a signal that overwhelm is on the horizon. Sometimes the workload is too great, sometimes clutterers are too optimistic about what they can accomplish, sometimes there’s a simple lack of filing cabinets or storage space, sometimes skills to do the work are lacking, sometimes procrastination is a factor. Whatever the cause, the person at the center is at risk for reduced performance and perhaps worse.

If you work for or supervise someone with a clutter problem, take it seriously enough to find out how long-standing a problem it is and notice whether it gets better or worse over time. Don’t let it go on long if you’re the supervisor. If you’re the one supervised, be extra careful to get what you need to do your job – including an annual review.

And if you’re the clutterer, devote some time to addressing the elements of chaos in your immediate surroundings. Consider using experts:  a recently-arrived executive director I know hired a professional organizer to help him get settled in the disorganized office he inherited and she did a great job. What works best for me is setting an intention before I go into my office that I will not read email or do any research or writing; I am going there to create a desk-top that won’t distract me the next time I sit down to work. Looking around me, I see that it’s time.

Posted in Nonprofit Finance, nonprofit accounting | 1 Comment »

Barack Obama’s Example for the Nonprofit Accountant

Recent client engagements have reminded me how easy it is to become overwhelmed with requests and expectations from our colleagues. On any given day, you could find that one comes to you for help with her time sheet, another needs a check by 3:00, the development assistant “reminds” you – for the first time! – that a grant report is due tomorrow and she needs the financial report from you. Your own work plan can get lost amid the distracting requests. It can be challenging to both accomplish it  and serve the needs of the organization your department is there to help.

It is certainly key to making progress that procedures be clearly and efficiently designed so that accurate information is gathered timely and you can be as efficient as possible. But just as important is managing your own reactivity.

Today is inauguration day. The news is full of information about Barack Obama, yet there’s one story I recall hearing on the election day evening news that I haven’t heard again. On that night, the NPR reporters said that the reason Obama hadn’t spoken on the news shows as early as people expected him to was that he was having a family dinner with his wife and daughters and he wasn’t answering his pager or his cell phone. Yes, it was the night he would learn whether the time and energy he had spent over the last two years of his life had been enough to achieve a most daring goal. Important as that was, he and Michelle isolated themselves from all speculation, drama, excitement and news so that they could have a quiet homecoming dinner with their children in their own dining room. They decided what mattered most and then protected it from everything until they were ready.

The kernel of this story that relates to the common predicament of nonprofit accountants is that you don’t need to let other people throw you off course. You don’t need to get caught up in their drama. You don’t need to comply immediately with their requests. It helps, certainly, to have an executive director or some members of your management team who can help reduce reactivity in an organization, but even without that, you can set your timelines, priorities, and processes and stick to them.

When someone comes to you with a demand, talk with them until the reasons for urgency are clear, and then make your own determination about the critical timeline. Keep smiling, keep listening, keep asking questions, stay calm, and when you have a clear picture of the task, tell them what you will do and when they can expect the finished product. Then follow through and deliver it. Letting them down will cause a breach of trust it may take a long time to repair. Performing as you said you would places another solid rock in the foundation of a great working relationship.

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Alert Accountant Discovers Fraud - But Not Soon Enough

The accountant for a nonprofit pays the bills each week. After she cuts the checks, she clips them to their backup, puts them in a folder marked “for signature”, and puts them on the executive director’s desk. If the ED is out for a while, she puts them in a locking drawer in his office. Once he has signed them, the ED hands them back to the accountant; if she’s not in, he puts them back in the locking drawer and emails her that they’re ready to be mailed.

The accountant then places each check and any remittance advice in an envelope, seals it, and hands the stack to the office manager, who runs them through the postage meter and then puts them in a box marked “outgoing stamped mail” that sits on a shelf behind the receptionist’s desk so it’s easy for all staff to toss mail into it. Around noon each day, the mail carrier picks up everything that’s in that box.

Last month, this accountant cut a check to her state taxing authority and was reminded that, according to the normal tax remittance schedule, she should have sent them a check last summer. She didn’t remember cutting such a check, so she reviewed her records, which showed that a payment had indeed been made. She remembered that she had been on vacation at the time and someone else had done her job. When she was telling me this story, a puzzled look crossed her face at this point.

“I don’t know what made me do this,” she said, “but I went to the bank statement envelope and actually found the physical check. I couldn’t believe what I saw there:  it wasn’t made out to the taxing authority! It was made out to another company that I’d never heard of!”

Then she called the taxing authority and discovered not only that they hadn’t received the check, but that they had levied thousands of dollars in fines and interest on her agency in the meantime without sending any notice that the taxes were late. Puzzled and shocked, she took a closer look at the check: the font was the same throughout and the signature was clearly that of the executive director…but then she realized that the payee’s name was written in a slighter larger version of the font. She didn’t understand how this could have happened. Fraud had clearly been committed…but how?

The check was probably intercepted someplace along the way – either as it waited in the box behind the receptionist’s desk or after it arrived at the taxing authority’s office – and then it was washed. That is, the original payee’s name was washed away carefully with a solvent and then a new payee was carefully added. The bank didn’t notice when it accepted and paid the check. The organization now has its work cut out. It may never get the fines and interest waived and it will almost certainly not recover the original $20,000 – the face value of the check.

Here’s what you might do to prevent this:  Follow closely the route checks take through your office and make sure they are secure until they are handed over to a postal worker. Professional thieves need only a few seconds to take your valuables; deny them the chance.

Visit www.NFPAccountingHelp.org for more resources - some free, some not - related to internal control, accounting and finance for nonprofit accounting folks.

Posted in Fraud in nonprofits, Nonprofit Finance | No Comments »

Protecting Your Bank Deposits Over $100k

October 21, 2008

Note: Lots has changed in the month since I wrote this post! Among other things, the FDIC insurance limit is now $250,000; otherwise, the article below remains current.

Quick, what does FDIC stand for? Most accountants, finance managers and board members know that cash deposits in banks are insured for up to $100,000 per depositor, and the Federal Deposit Insurance Corporation is the insurer. They also know that any deposits in excess of $100,000 are at risk: if the bank fails, you are not likely to get all of your money back.

A year ago, bank failures may have seemed like a remote bad dream. Now, we are watching as large banks go under. Is your nonprofit at risk? Its board or management team may think of their organization as small and cash poor, yet even small not for profits can find themselves with more than the FDIC insured amount deposited in their bank.

If your organization is at all successful in building reserves, it’s likely to have well over that $100,000 amount in cash or money market deposits. If it receives large grants in advance, chances are it’s in the same leaky boat. You can reduce your risk of losing those excess amounts to 0% (yes, zero) by opening accounts at several banks and moving money around when it’s needed. That means, if you have $500,000 in reserves, you’re dealing with at least five different banks. There’s an easier way to get to 0% risk that you may want to consider.

CDARS stands for Certificate of Deposit Account Registry Service, LLC. Banks become members of the Service and then make deposits on behalf of their customers at other member banks. The service makes sure that none of the deposit accounts carries a balance in excess of $100,000. The interest rate you negotiate applies to all the accounts, and they are all presented on one monthly statement to you.

More than 2,200 banks are members of CDARS as of this writing. Most of them are community or regional banks that are too small to be able to compete with big banks in this arena, so it’s likely that there’s a bank in your area that offers access to this system.

I’ve researched CDARS a bit in an attempt to find out what’s in it for the banks on the theory that someone is making money on this set-up. What I’ve discovered is that small banks benefit from having a network to help them with their own cash flow and depository issues, so they benefit directly without charging or - it seems - paying a fee.

The one draw-back to buying CDs through CDARS may also be an advantage. When you sign a CDARS agreement and deposit money with your bank, you will negotiate a CD rate that will apply to all the CDs your money purchases, even if the bank that ultimately ends up with your money would have offered you a higher rate if you had deposited it directly. It’s also true that you might have been offered a lower rate by said bank, in which case it becomes an advantage to be with CDARS. And you haven’t had to spend time making a phone call or visiting a bank or requesting a proposal - and that seems like a true advantage!

You can find a list of banks that participate in CDARS at www.cdars.com, where you can search by state or by bank name.

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