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DATA INTEGRITY and Closing the books

If you know me, or have had the opportunity to hear me speak, you would know that before I made the transition to lead an outsourced accounting practice, my goal with my book of business was for them to “master” their internal accounting before the numbers came to me to prepare the financial statements and tax returns. I did not want to spend my time reconciling cash or trying to figure out why their retained earnings was off by $37,502.82 from where it should be. That being said, I often found myself diving into the weeds to untangle various account balances.

Eventually, I would uncover the error, post adjusting entries, and educate the client so that they could avoid this mistake in the future. WASH, RINSE, REPEAT – I found myself doing this over and over again throughout the years, but It never made sense to me how this could happen in the first place.

Now that I am on the “other side”, I see how this can happen. There is a term in accounting, no matter what side you are on, called “closing the books”. What exactly does closing the books mean? Generally speaking, this is the point in time when no further entries can be posted to a period. For example, my team goes through a systematic process each month which involves finalizing bank/credit card reconciliations, tying out trial balance accounts to the sub ledgers, and review of the general ledger activity for accuracy. Once that process is complete the balances are physically locked down for that particular period.

Best practices in accounting tend to lean toward the notion that once a financial report is generated (common balance sheet and income statement) for a period, you should no longer make changes to it. I knew this to be true from my experience in “public accounting”, but no matter how many times I would tell the controller not to change prior balances, inevitably, it happened. Regardless of the type of accounting software that was in place, there’s always someone with admin access that can unlock the books or the accounting team was unaware of how to properly execute the function, and they did not recognize the impact such changes can have. Now that I am leading an outsourcing practice, it was one of my highest priorities to institute this practice as part of my team’s monthly task. Once the reports are approved, the books are closed – no one can “get back into” the books and change them.

If something truly needs changed, there is an option to post an adjustment to the period, but that adjustment must be approved by a CFO, and documented as well. Once the adjustment is posted, new reports are generated.  That does not happen often, and requires client approval.

Why is this so important to me and my team? Data Integrity. In the simplest terms this phrase can be described as the prevention of unintentional changes to information to ensure that when the data is retrieved it is the same as it was when it was recorded. Without a formal process to close the books, augmented by technology, you will never have data integrity. Anyone can go to a prior period and void, change, or even delete transactions without these safeguards. Many executives don‘t have the time to review the prior month information as compared to current year to date – it’s a straightforward way to commit fraud!

Are you prepared to deal with changes in your financials that you did not even know about? If not, give us a call and let’s talk about how WVC RubixCloud might be able to help you.