Precautions in Accounting Bookkeeping Software
Even freely available off-the-peg packages can contain errors. Some of them are updated once a year and it is wise to give a new package a few months to ‘bed down’ so that errors can be sorted out before the business purchases its own.
Many companies use their own custom-written software. This needs to be thoroughly tested before use. In one example seen by the author, the software indicated a gross profit some £100,000 lower than management expectations. It took several days to discover that a stock
purchase had been correctly recorded in expenditure and creditors but the computer had not included it in the value of closing stock. Why this happened was a mystery, since all other similar transactions had been treated correctly, and it was put down to an error in the writing of the software.
A good software package will flash on the screen a warning whenever a journal is posted to the sales or purchase ledger control account. This is because the total of the individual ledger accounts may then not match the control account total.
The use of spreadsheets (see later in this chapter) for bookkeeping is very flexible and inexpensive. They are also more prone to errors than most software packages. A common error is to add an extra line to a list of items and not amend the formula which totals the list. To prevent formulae from being amended or additional rows and columns from being inserted in an Excel spreadsheet without authorisation, there is a useful feature which is operated as follows:
- Select the cells on the worksheet that you do want the user to be able to amend (these should be the data input cells only), click on Cells/Format and untick the ‘Locked’ box.
- Select Tools/Protection/Protect Sheet and enter a password.
If, for example, you wish the user to enter values in A1 to A10 with a sum total in A12, unlocking A1 to A10 will enable data to be entered in these cells but the ‘sum’ formula in A 12 remains unalterable.
Entries into the computer system should be made only under appropriate passwords. This is especially sensitive with purchase ledger entries. Without adequate controls, an employee could post bogus purchase invoices and effect payment to an accomplice, or even fraudulently
amend the bank account details of an existing supplier so that payment is diverted.
It is recommended that the system allows bank account details to be amended only under two passwords. As for purchase invoices, they could be entered in batches under one password and then ‘locked’ by a supervisor’s password before being cleared for payment.
A daily printout of items entered into the computer could be scanned by a senior employee to ensure. that no glaring errors have occurred. This might increase the possibility of catching an error such as one seen by the author in which expenditure was misdescribed and
VAT of £14,000 was not reclaimed.
A good feature of some software packages is the automatic recognition of duplicate invoices. An invoice with the same number as one already entered into the system will be rejected.
Computerised records may be more convenient but carry more risks. Computer breakdown can cause temporary lack of access and may even lead to the complete loss of data. The company which was recently sent five million e-mails by a single employee, suffering damage which cost £30,000 to put right, would no doubt concur.
It is good practice to retain daily printouts of items keyed into the computer. In addition, a series of backup disks should be made and at least one kept away from the site where the computers are located. There is little excuse for not doing this now that high
capacity data sticks are available. This is common sense when one considers the possibility of fire or theft.
HMRC will sometimes waive penalties for late VAT Returns if the delay was caused by a computer breakdown, but only if the business took reasonable steps to prevent this happening.
The final trial balance for an accounting year should exactly match the financial statements. Too often, auditors discover that this is not the case. Auditors examining the accounts for the year ended 31 December 2007, for example, will want to see that the retained profit brought forward at 1 January 2007 corresponds to that on the balance sheet at 31 December 2006. Auditors will often hand the bookkeeper final journals at the end of an audit, usually for depreciation, accruals and prepayments. These should be entered into the computer and a final
trial balance produced. If the business is satisfied that this reflects the figures in the final accounts, the year in question should be ‘locked’ so that no further entries can be mistakenly posted.
Recent news items have highlighted the consequences of failure to guard computerised information with due care. Every business owes a duty of confidentiality to its employees, suppliers and customers, and if their details are held on computer, adequate precautions must be taken to avoid leakage.
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