Bookkeeping Mistakes and Issues Which Can Affect Your Business

Are your books correct?

Are you sure?

At XBert, we’ve analysed the accounts files of 3000 businesses. Shockingly, around 92% of businesses have bookkeeping mistakes, issues or other risk factors.

Some of those issues are bigger than others, of course. Not every risk will go bad – sometimes it’s just missing data. And luckily, human error is far more common than deliberate fraud.

All the same, a lot of businesses don’t have good data, so the owners can’t get a clear picture of where they stand.

What kind of issues are we talking about here?

Let’s have a look at some possible scenarios.

1. You’re running a busy marketing agency. You’re trying to forecast cashflow. There’s an unpaid invoice for $250,000 in your books. You think you’ve got $250,000 of revenue coming in soon – but in actual fact, it’s a duplicate invoice. The client’s already paid the first invoice and this one will never be paid.

How long would it take you to find out?

And what would you have done differently if you’d known that money would never come in?

2. You run a takeaway shop and you have 3 or 4 school students serving the afternoon and evening shifts. You pay them all Award wages. One of them has a birthday and to remain compliant you need to increase their pay.

How long would it take you to find out?

And what if they decided you were deliberately underpaying them and reported you to Fair Work Australia?

3. One of your employees has access to your accounting system. They update the bank account details of a regular supplier, inputting their own bank details instead.

How long would it take you to find out?

And how would you ever get the money back?

These are all things which have happened in real life. The first one happened to me. It’s one of the reasons I shut that marketing agency down and started XBert with my old school friend Aaron Wittman.

XBerts are little AI programs which run checks on your books and alert you to anything unusual or which might be a risk. So you don’t have to go looking for it.

What are the most common errors and omissions?

If you want to make sure your books are accurate and you have a clear picture of how your business is travelling, here are some things to look at or discuss with your bookkeeper

1. Have you checked the GST status of every supplier?

We see this all the time. Neither the business owner nor the bookkeeper enters an ABN or checks whether the supplier is actually registered for GST.

The numbers are scary.

· 30% of files we examined were ready to pay bills including GST to suppliers who weren’t registered for GST, had cancelled their registration, or couldn’t be checked because there was no AB.

· 66% had already paid GST to non-registered suppliers. The average amount was $4,300 per annum.

Why’s that a problem? Say a supplier sends you an invoice which includes $10,000 of GST. When you submit your BAS, you basically tell the ATO that you’ve paid that GST already and they can collect it from your supplier instead of from you. But if your supplier isn’t actually registered for GST, they can’t. They’ll come back to you, and you’ll be liable.

Of course everyone’s busy and it’s a pain to have to check the GST status of every new supplier on your books. That’s why we have an XBert – a little AI routine – to do it for you. This particular XBert looks up the ABN of your supplier and then checks with the ATO whether that ABN is registered for GST. Then it sends you an alert if there are any anomalies, such as:

· There’s no ABN on your file, so there’s no way to check whether they’re registered for GST

· The ABN on the invoice isn’t the same as the ABN on your contact record.

· The ABN isn’t registered for GST, but there’s GST on the invoice.

Doing all this automatically makes it possible without overwhelming business owner and bookkeepers who are already really busy.

2. Employee and payroll records are not properly set up

Payroll can be tricky. Maybe you didn’t have super details when someone started and then you forget to chase it up. Or the tax file number is missing, or you’ve set up the annual leave incorrectly.

All these things mean you may end up with an unexpected liability. Your business isn’t as financially healthy as you thought it was. We want to avoid business owners getting that kind of shock. We’d rather they know about any potential problems so they can sort them out.

3. Invoices in draft affect your reports

This is another example where information in the accounting system can confuse the issue. It can happen in all kinds of scenarios, but a common one is where there’s a recurring invoice, but the customer cancels. The system may go on creating invoices for some time till you cancel them. And those invoices roll into your reports, so you may think there’s more money owed to you than there is.

4. You don’t notice when a customer’s normal payment schedule changes

Some customers pay as soon as you invoice them. Others pay regularly at 30 days, or at the end of each month. They’re all different, but they all have their own routines. But if a customer goes from paying in 7 days (weekly) to paying in 30 days, that’s important to notice and to investigate. It could be a change in their processes – or it could be a sign they’re in trouble. You want to know as soon as possible so you don’t end up with invoices outstanding which they can’t pay.

5. Missing attachments on expenses

We all know sales people hate filling in expenses forms and half the time they lose receipts. They only way you can get the backup documents you need is to insist on them right away. But you may be too busy – and you don’t want to cause an issue with a good salesperson. It’s all too easy to let this kind of thing slide, but it can cause you a lot of trouble with the ATO.

And finally, let’s talk about fraud

We already described the scenario where an employee (or even your bookkeeper!) is funnelling money off to their own account.

Changing bank details on invoices is one of the most common frauds to affect small businesses. It costs Australian businesses over $79 million a year. Usually, fraudsters intercept emails and change the attached invoice file.

So we developed an XBert to notify business owners and bookkeepers when bank account details are changed. It also advises them how to check those details before paying the money over.

What can you do to look after your business?

Obviously, we’d love it if every single small business owner used XBert to check their books and alert them to any problems. But if you’re not going to do that, l hope at least I’ve given you some ideas about things to check, either when you do your books yourself or when you’re talking to your bookkeeper.