Garbage In, Garbage Out – never more relevant than it is with the digitisation of business bookkeeping, accounting and tax compliance systems.
With fully integrated bookkeeping, accounting and tax compliance software, where all reports and returns are based on a single database, ‘garbage’ can become extremely costly:
- False information in reports can lead to catastrophic business decisions.
- Errors in tax submissions can lead to huge financial cost by way of penalties and interest.
- The cost of identifying inaccuracies and errors can itself be massive!
A system of controls over and reviews of documents and data processing is essential to avoiding those costly errors and ensuring completeness, accuracy and validity of the accounts, reports and returns generated. That imposes obligations on both you, the business owner, and your bookkeeper and/or accountant.
Your obligation, to yourself and to ensure that the bookkeeper or accountant is provided with the complete and accurate documents to allow them to efficiently and accurately perform their duties, is to provide documents, information and any additional explanations required, on a timely basis.
The obligations of the bookkeeper or accountant are to control the documents and information received from you, so that it is processed accurately and on a timely basis and to reconcile and balance ‘output’ to ensure accuracy.
We’ve seen too often that businesses adopt new software but overlook the systems and controls that are required if it is to be operated efficiently and accurately, resulting in huge costs to deal with the resulting chaos. In one case, simple failure to properly reconcile the bank account led to duplication of transactions resulting in understated profits of almost £100,000, with the results that:
- Corporation tax was underpaid by tens of thousands of pounds.
- Dividends were declared and paid to the shareholders which were technically illegal.
- A large bill from the replacement accountant – see below – for carrying out the work to rectify the situation.
- The resulting cash flow difficulties almost brought the company down.
The point is, too, that the bookkeeper/accountant’s systems and standards of work did not stand up to scrutiny. They had taken no steps to reconcile the records or review them for accuracy. Not surprisingly, their client dismissed them and replaced them with a reputable, professional firm!
So, controls, reviews and standards are an essential part of digital bookkeeping, accounting and tax compliance, both in house to ensure the completeness and accuracy of documents, records and information provided and from the appointed bookkeeper and/or accountant in dealing with that information.