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Due To / From Accounts

 
 
Preston
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      04-01-2004, 01:45 AM
This is for any seasoned professionals out there.

Often in practice, you will come across clients with substandard
accounting systems or staff. When this is the case, if the
organization has a great deal of transactions running through Due To /
Due From accounts across funds or related entities, it is highly
likely that these accounts will be out of balance. Sometimes without
a great deal of analysis, the problems can be worked out during the
audit or tax return preparation. Other times, the problem runs much
deeper, especially if a pooled cash account is involved and literally
every cash transaction affects the Due To / Due Froms.

What approach would you take in a situation like this? Client staff
is not capable of fixing the problem due to inexperience. Possibly
client staff created the whole mess on purpose to conceal something.
Either way, the accounts need to be properly balanced and problems
revealed so the financial statements can be prepared. What would you
do? Withdraw from the engagement, or stay and resolve the problem
with a surefire method to tackle the problem?

Thanks,

Preston Singleton, CPA
 
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John
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      04-01-2004, 02:07 AM

"Preston" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> This is for any seasoned professionals out there.
>
> Often in practice, you will come across clients with substandard
> accounting systems or staff. When this is the case, if the
> organization has a great deal of transactions running through Due To /
> Due From accounts across funds or related entities, it is highly
> likely that these accounts will be out of balance. Sometimes without
> a great deal of analysis, the problems can be worked out during the
> audit or tax return preparation. Other times, the problem runs much
> deeper, especially if a pooled cash account is involved and literally
> every cash transaction affects the Due To / Due Froms.
>
> What approach would you take in a situation like this? Client staff
> is not capable of fixing the problem due to inexperience. Possibly
> client staff created the whole mess on purpose to conceal something.
> Either way, the accounts need to be properly balanced and problems
> revealed so the financial statements can be prepared. What would you
> do? Withdraw from the engagement, or stay and resolve the problem
> with a surefire method to tackle the problem?
>
> Thanks,
>
> Preston Singleton, CPA


there is another option but I don't know if it's appropriate to use the
results of a third party for an audit, - banks (at least large banks) often
reconcile their customer accounts (for a fee)










 
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Help
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      04-01-2004, 02:17 AM
I'd see if the client would extend my engagement to resolve the issues
for additional billable time.

--
Computer Help Desk
MAS90, Peachtree & Quickbooks
No waiting for help

660-216-0397
Northeastern Missouri


 
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Stephen Lewis
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      04-01-2004, 07:35 AM
Preston,

It is a concern when a lot of activity runs through due to/from accounts.
That can be an indicator of fraud. It will apparently take quite a bit of
time to sort out what belongs where so I would start by talking to the
person in charge, informing them of the problem and tell them that your fee
will be higher than anticipated due to the additional time you will have to
spend. I am assuming this is an audit which is why you need to clean things
up although if they are interfund due to/froms they will eliminate in
consolidation anyway. If they are for related entities etc. then you will
have to go through perhaps transaction by transaction to properly post them
if a common cash account is used. There are other techniques that may work
but without lots of details it is hard to explain in an e-mail. As an
alternative the company could bring in an outside bookkeeper from a temp
agency to sort it out for you.

Hope this helps a bit,

Stephen Lewis, CPA
"Preston" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> This is for any seasoned professionals out there.
>
> Often in practice, you will come across clients with substandard
> accounting systems or staff. When this is the case, if the
> organization has a great deal of transactions running through Due To /
> Due From accounts across funds or related entities, it is highly
> likely that these accounts will be out of balance. Sometimes without
> a great deal of analysis, the problems can be worked out during the
> audit or tax return preparation. Other times, the problem runs much
> deeper, especially if a pooled cash account is involved and literally
> every cash transaction affects the Due To / Due Froms.
>
> What approach would you take in a situation like this? Client staff
> is not capable of fixing the problem due to inexperience. Possibly
> client staff created the whole mess on purpose to conceal something.
> Either way, the accounts need to be properly balanced and problems
> revealed so the financial statements can be prepared. What would you
> do? Withdraw from the engagement, or stay and resolve the problem
> with a surefire method to tackle the problem?
>
> Thanks,
>
> Preston Singleton, CPA



 
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Karl Irvin
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      04-01-2004, 03:05 PM
I had one of these a few years. About 50 retail stores, most of which had a
receivable or payable to the other 49 or so stores due to merchandise
transfers. The net of all the accounts had a balance. We ended up writing
off the net balance and set up one receivable/payable account on each store
to a corresponding account on the main warehouse books which had a
receivable/payable account to all the stores. Transfers hit 3 sets of books
but were more controllable.


"Preston" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> This is for any seasoned professionals out there.
>
> Often in practice, you will come across clients with substandard
> accounting systems or staff. When this is the case, if the
> organization has a great deal of transactions running through Due To /
> Due From accounts across funds or related entities, it is highly
> likely that these accounts will be out of balance. Sometimes without
> a great deal of analysis, the problems can be worked out during the
> audit or tax return preparation. Other times, the problem runs much
> deeper, especially if a pooled cash account is involved and literally
> every cash transaction affects the Due To / Due Froms.
>
> What approach would you take in a situation like this? Client staff
> is not capable of fixing the problem due to inexperience. Possibly
> client staff created the whole mess on purpose to conceal something.
> Either way, the accounts need to be properly balanced and problems
> revealed so the financial statements can be prepared. What would you
> do? Withdraw from the engagement, or stay and resolve the problem
> with a surefire method to tackle the problem?
>
> Thanks,
>
> Preston Singleton, CPA



 
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Wolfgang Rochow
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      04-02-2004, 01:57 AM

"Preston" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> This is for any seasoned professionals out there.
>
> Often in practice, you will come across clients with substandard
> accounting systems or staff. When this is the case, if the
> organization has a great deal of transactions running through Due To /
> Due From accounts across funds or related entities, it is highly
> likely that these accounts will be out of balance. Sometimes without
> a great deal of analysis, the problems can be worked out during the
> audit or tax return preparation. Other times, the problem runs much
> deeper, especially if a pooled cash account is involved and literally
> every cash transaction affects the Due To / Due Froms.
>
> What approach would you take in a situation like this? Client staff
> is not capable of fixing the problem due to inexperience. Possibly
> client staff created the whole mess on purpose to conceal something.
> Either way, the accounts need to be properly balanced and problems
> revealed so the financial statements can be prepared. What would you
> do? Withdraw from the engagement, or stay and resolve the problem
> with a surefire method to tackle the problem?
>
> Thanks,
>
> Preston Singleton, CPA


After all the good advice as to what to do about the past, what will your
client do in the future? Repeat the process?

Why not recommend the upgrade of their systems to software that is capable
of automating the Due To / Due From process (it is available)? Auditors
/Accountants often recommend improvements that will prevent the recurrence
of known problems.

Wolfgang Rochow
(E-Mail Removed) (remove contact)
www.gestalt.com



 
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Preston
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      04-02-2004, 07:39 PM



>After all the good advice as to what to do about the past, what will your
>client do in the future? Repeat the process?
>
>Why not recommend the upgrade of their systems to software that is capable
>of automating the Due To / Due From process (it is available)? Auditors
>/Accountants often recommend improvements that will prevent the recurrence
>of known problems.
>
>Wolfgang Rochow
>(E-Mail Removed) (remove contact)
>www.gestalt.com
>


Believe me, when I run across this during an audit, I report it in the
Management Letter or report an audit finding depending on the
severity. I also stress in the exit conference the importance of
monthly account analysis so that if something goes wrong it can be
detected in the month it happened and therefore be much easier to
correct. Somtimes though there have been management changes or its a
new client to the firm and this situation arises. I guess the only
way to fix these accounts is to roll up your sleeves, go back to the
last time they were in balance, and analyze each transaction from then
on. I was just wondering if there was another technique out there
that I am unaware of.

Preston Singleton, CPA>

 
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