How to create energy that sustains you
Mar 06

How to Create Energy that Sustains You

By Charles Hall | Accounting and Auditing

So you are in the middle of your busy season and you are wondering how you will get it all done. Right?

One thing is for sure: Without energy, nothing happens. As Jim Loehr and Tony Swartz say in The Power of Full Engagement: Energy, not time, is the fundamental currency of high performance.

How to create energy that sustains you

I started my career in 1984. It was a time when CPA firm partners would demand that you put your head down and never look up (and if you did, you might get whacked). The thought was that young staff were inexhaustible. After all, we had our youth.

But after being in public accounting for over thirty years, I have found that such an outlook is not only unwise, it is counterproductive. Sometimes squeezing out “just one more job” causes us to implode.

So should we work hard? Absolutely. But we should also recover if we are to perform at our highest levels.

When Do You Need Recovery?

Here are a few signs that you worked too long, and you need recovery:

  • You stare at a financial statement page for several minutes before you realize you are in a daze (not reading, just staring)
  • You can’t stay focused (your mind keeps wondering)
  • You are working with a sense of dread rather than joy
  • You are too stressed to sleep at night
  • You find yourself increasingly rude to your spouse, friends, coworkers
  • You reach for too much caffeine, or worse, alcohol, to get you through the day
  • You feel like a robot
  • You are often short of breath
  • You have a sense of drowning

The body needs balance, and when it doesn’t get it, strange things start to happen. And when this work style–working without recovery–becomes habitual, we lose our vitality and health. Our production begins to decline rather than increase.

How Do You Recover?

Picture is courtesy of DollarPhoto.com

Picture is courtesy of DollarPhoto.com

Here are disciplines that will enable you to excel during your busy season.

  1. Take breaks – Working ten to twelve hours a day (and eating at your desk)–without breaks–is a sure way to deplete yourself. You need to work and recover, work and recover, work and recover — not work, work, work. The recovery can be as simple as taking five minutes to stand and stretch, but you need to move periodically away from your desk. If possible, go outside and walk for five to ten minutes (a couple of times a day). Recovery can be a simple phone call to a family member to tell her (or him) that you love them. Some professionals use the Pomodoro technique to move in and out of their work. There’s even an app for that. It may seem counterproductive to take breaks, but it’s not — as long as we don’t abuse the break time. Remember the purpose of the short break is to recover. For those of you that are runners, you know that Jeff Galloway teaches the same art in running: run and mix in walks (recovery). And many who use Jeff’s technique have found they can run farther and faster.
  2. ExercisingRun, walk, or do some exercise on a consistent basis. I was a smoker in college and–as a way to help me kick the habit–I started running. That was thirty-seven years ago. Today I am fifty-seven, and I still either run or walk at least three times a week. I find that running helps me the most. When I consistently run, I think more clearly and don’t drag late in the day. When I don’t run, I notice my thinking becomes cloudy, and I become moody. When I’m on my routine (run three times a week, at least, two miles a run), I even notice that I have bursts of energy in the middle of the afternoon, something that never happens when I am not exercising.
  3. Drink water – Staying hydrated throughout the day will keep you humming late in the day. I have put a water dispenser in my office, so I don’t have to worry about going to the store to buy bottled water. The cost of the water container (and water that they bring to my office) is about $25 per month — worth every penny.
  4. Sleep – I have read a great deal about how much sleep I need each night. And it seems the consensus is a minimum of 7.5 to 8.0 hours per night. I know this: when I get consistent sleep, I perform better. I have a routine each evening of winding things down about 9:30 and being in bed about 10:00 p.m. so I can rise at 6:00 a.m. (so I can write blog posts like this one). Going back to exercising for a moment, if you work your body hard, you will sleep better. I have noticed the farther I run, the harder I sleep. Also, if I am in bed for more than fifteen to twenty minutes without going to sleep, I get up and take melatonin — this helps me fall asleep.
  5. Eating well – Another method of recovery is eating. Not too much, but enough to provide energy. I eat a healthy breakfast each morning, a light lunch, and dinner. Then about mid-morning and mid-afternoon, I snack (usually nuts or fruit). If you’ve ever watched Tiger Woods play golf, you’ve seen him munching on a banana or energy bar during the middle of a round — he’s feeding his body to maintain energy. Eating too much at one time will throw your body’s metabolism out of balance, so a steady intake (balance) is what we need.
  6. Coffee – Coffee in moderation can stimulate your thinking and mood, at least, it does for me. I drink a cup first thing in the morning. Then I have another cup just after lunch. Too much coffee will drain you of energy. Rather than reaching for another cup, take a short walk, drink more water.
  7. Music – If possible listen to good music while you work. I find that I am more productive with music playing quietly in the background.

Call to Action

Try one or all of these and stay at it. Habit is the key. You may find in the initial days of change that you’ll desire to revert to your old habits, but as you continue, your new ways will become normal. Then you’ll find new energy for the tasks at hand.

Have a great day!

how to extract pages from a PDF
Mar 05

How to Extract Pages from a PDF

By Charles Hall | Technology

Your PDF has 116 pages, but you desire to send ​a single page ​to a client. So, you're wondering how to extract a page from a PDF. Below, I show you how. Then I  demonstrate how you can email the information. It only takes seconds. (I am using Adobe Acrobt DC in this demonstration.)

​More Adobe Acrobat How-To Videos

Feb 27

Preparing Financial Statements: Which Standards Apply?

By Charles Hall | SSARS

SSARS 21 added a new section to the compilation and review standards called Preparation of Financial Statements. Since then, I’ve received several questions about which standards apply when financial statements are prepared–especially if you concurrently provide another service such as a compilation, review, or audit.

Those questions include:

  • Can an accountant perform a compilation and not prepare the financial statements?
  • Are the preparation of financial statements and the performance of a compilation engagement two separate services?
  • If an auditor prepares financial statements and audits a company, what is the relevant standard for preparing the financial statements?
  • Is the preparation of financial statements a nonattest service, though the audit is an attest service?
Picture is courtesy of Dollarphoto.com

Picture is courtesy of Dollarphoto.com

Below I provide: (1) a summary of how compilations changed with the issuance of SSARS 21 and (2) a summary of how the preparation of financial statements service interplays with compilations, reviews, and audits.

The Old Compilation Standard 

Using SSARS 19, the performance of a compilation involved one service which encompassed:

  • Preparing financial statements,
  • Performing compilation procedures (e.g., reading the financials), and
  • Issuing a report

How Compilation Engagements Changed 

So, how did SSARS 21 change compilations?

If an accountant prepares the financial statements and performs a compilation engagement using SSARS 21, she is performing two services (not one). In this case, the performance of the preparation of financial statements is not subject to any formal standard (including SSARS 21).

When an accountant performs both the preparation of financial statements and a related compilation engagement, is AR-C 70, Preparation of Financial Statements, applicable?

No.

“Wait…you’re saying that a new standard called Preparation of Financial Statements was added with SSARS 21, but when the accountant prepares financial statements and performs a compilation engagement, the (SSARS 21) preparation standard is not applicable?”

Yes.

AR-C 70, Preparation of Financial Statements, states that the standard is not applicable “when an accountant prepares financial statements and is engaged to perform an audit, review, or compilation of those financial statements.” So if an accountant prepares financial statements as a part of a compilation engagement, AR-C 70 does not apply.

Why?

If AR-C 70, Preparation of Financial Statements, and AR-C 80, Compilation Engagements, were both in play, they would conflict. AR-C 70 requires the accountant to state on each financial statement page that “no assurance is provided” or to issue a disclaimer. AR-C 80 requires the issuance of a compilation report and does not allow the accountant to state that “no assurance is provided” on each financial statement page or for the accountant to issue a disclaimer.

Meaning?

When the accountant prepares financial statements and performs a related compilation, the creation of the financial statements is a nonattest service with no particular guidance–not even from SSARS 21. (Of course, the AICPA Code of Professional Conduct applies to all services.)

When a compilation engagement (an attest service) is performed and financial statements are prepared (a nonattest service), two separate services are being performed by the same accounting firm.

The Interplay of Financial Statement Preparation and Other Services

The table summarizes which standard is applicable when:
1. A preparation engagement is performed (alone)
2. Preparation and compilation engagements are performed for the same time period
3. Preparation and review engagements are performed for the same time period
4. Preparation and audit engagements are performed for the same time period

Preparation of Financial StatementsCompilation EngagementReview EngagementAudit EngagementStandard to Follow
YesAR-C 70 Preparation
YesYesAR-C 80 Compilation
YesYesAR-C 90 Review
YesYesAU-C Audit Sections

AR-C 70, Preparation of Financial Statements, applies only in the first example above. When the accountant performs a preparation service and a compilation, review, or audit service for the same time period, AR-C 70 is not applicable–that is, no formal standard applies to the preparation service.

In all the examples listed above, the preparation of financial statements is a nonattest service.

In examples 2, 3 and 4 (where a preparation service and an attest service are provided), your engagement letter should include language about performing nonattest services and how the client will assign someone with suitable skill, knowledge, and experience to oversee the preparation of financial statements service. Such language is only required when a nonattest and an attest service is provided.

SSARS 22 and 23

Since the above information deals with SSARS 21, you may be wondering what additional SSARS have been issued–and how those newer standards affect compilations. 

SSARS 22, Compilation of Pro Forma Financial Information was effective for compilation reports dated on or after May 1, 2017. So, what is pro forma information? It is a presentation that shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date.

SSARS 23, Omnibus Statement on Standards for Accounting and Review Services, was issued in late October 2016. That standard changed supplementary information wording in compilation and review reports

The primary impact of SSARS 23 is to provide standards for the preparation and compilation of prospective financial information.

While portions of SSARS 23 were effective upon issuance (the supplementary language change), the remainder of the standard was effective for prospective financial information prepared on or after May 1, 2017, and for compilation reports dated on or after May 1, 2017, respectively.

comparing financial statement numbers in a PDF
Feb 21

How to Compare Financial Statements Numbers within a PDF

By Charles Hall | Technology

Sometimes you need to compare financial statement numbers within a PDF–even though the numbers are pages apart. How can you do this without printing the PDF? Below I show you how.

Of course, a second way to compare financial statement numbers is to open a second instance of the PFD on an adjacent monitor. I do both, depending on the numbers I am trying to compare. I might use the first method (in the video) to compare rows of numbers (e.g., equity totals) and the second method to compare financial statement numbers to disclosures.

If your financial statements are in Word, you can easily convert them to a PDF.

measurement of inventory
Feb 19

Simplifying the Measurement of Inventory (ASU 2015-11)

By Charles Hall | Accounting

Are you up to speed on ASU 2015-11 Simplifying the Measurement of Inventory? This post assists in understanding the new accounting measurement for inventory.

measurement of inventory

Accounting Measurement for Inventory

ASU 2015-11 requires that entities measure inventory at the lower of cost or net realizable value (LCNRV), provided they don’t use the last-in-last-out method (LIFO) or the retail inventory method. Entities using LIFO or the retail inventory method will continue to use the lower of cost or market (where market is replacement cost). Entities using the first-in-first-out (FIFO), average cost, or any other cost flow methods (other than LIFO and the retail inventory methods) should use the lower of cost or net realizable value approach.

So, where applicable, market is being replaced by net realizable value.

The Financial Accounting Standards Board’s glossary defines net realizable value as follows:

Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Why the change? FASB is working to simplify some accounting standards. FASB had received comments from stakeholders that the requirement to subsequently measure inventory was “unnecessarily complex because there are several potential outcomes.”

Why did FASB not require the LCNRV method for all entities? The summary section of ASU 2015-11 says,  “The Board received feedback from stakeholders that the proposed amendments would reduce costs and increase comparability for inventory measured using FIFO or average cost but potentially could result in significant transition costs that would not be justified by the benefits for inventory measured using LIFO or the retail inventory method…Therefore, the Board decided to limit the scope of the simplification to exclude inventory measured using LIFO or the retail inventory method.”

What Disclosure is Required for the Change in Accounting Principle?

BC16 of ASU 2015-11 states the following:

The Board decided that the only disclosures required at transition should be the nature of and reason for the change in accounting principle. The Board concluded that the costs of a quantitative disclosure about the change from the lower of cost or market to the lower of cost and net realizable value would not justify the benefits because a reporting entity would be required in the year of adoption to measure inventory using both existing requirements and the amendments in this Update, and because the change would not be significant for some entities.

An entity is required only to disclose the nature and reason for the change in accounting principle in the first interim and annual period of adoption.

Sample ASU 2015-11 Disclosures

Here is a sample disclosure from Mercer International Inc.’s 10-K:

Accounting Pronouncements Implemented

In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (“ASU 201511”) which requires that inventory within the scope of this update, including inventory stated at average cost, be measured at the lower of cost and net realizable value. This update is effective for financial statements issued for fiscal years beginning after December 15, 2016. The adoption of ASU 201511 did not impact the Company’s financial position.

Here is a sample disclosure from Delta Apparel, Inc.’s 10-K:

Recently Issued Accounting Pronouncements Not Yet Adopted

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, (“ASU 201511“).  This new guidance requires an entity to measure inventory at the lower of cost and net realizable value. Currently, entities measure inventory at the lower of cost or market. ASU 201511 replaces market with net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured under last-in, first-out or the retail inventory method.  ASU 201511 requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities.  Early application is permitted.  ASU 201511 will, therefore, be effective in our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 201511 will have on our Consolidated Financial Statements and related disclosures, but do not believe it will have a material impact.

Here is a sample disclosure from Dr. Pepper Snapple Group, Inc.’s 10-K:

Recently Adopted Provisions of U.S. GAAP
 
As of January 1, 2017, the Company adopted ASU 201511, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 201511“). ASU 201511 requires inventories measured under any methods other than last-in, first-out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Subsequent measurement of inventory using LIFO or the retail inventory method is unchanged by ASU 201511. The adoption of ASU201511 did not have a material impact on the Company’s consolidated financial statements.

Effective Dates for ASU 2015-11

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

Mistakes CPAs Make
Feb 17

Twenty Mistakes that CPAs Make

By Charles Hall | Accounting and Auditing

Here are twenty mistakes that CPAs make:

  1. We hire people without sufficient knowledge and temperament
  2. We accept more work than we can possibly perform
  3. We don’t cull our bad clients (which contributes to #2.)
  4. We work without taking breaks
  5. We don’t exercise
  6. We try to be experts in too many industries
  7. We use outdated computers and software (e.g., we are not paperless)
  8. We don’t plan our continuing education (and take anything we can find at the end of the year)
  9. We have no strategy, moving from one engagement to another because it’s pressing
  10. We work sitting down all day (when standup desks are available)
  11. We bill our clients months after the service is provided (rather than a couple of weeks)
  12. We allow email to drive our day (we are reactive)
  13. We don’t express sincere appreciation to our peers and employees (those fully deserving of “thank you!”)
  14. We don’t use engagement letters to define our work
  15. We have no exit strategy, hoping someone will knock on our door and offer to buy the practice
  16. We ignore those we love (because we are overworked and irritable)
  17. We don’t stay current on evolving standards
  18. We don’t fire unproductive or difficult employees
  19. We don’t deal with problems (bad clients or employees) because doing so is awkward
  20. We never pause to evaluate our lives

Mistakes CPAs Make

Since  1984, I have worked in public accounting, a profession I dearly love. One thing I’ve noticed about CPAs is we are too immersed in our work–to a point of blindness. We don’t step back and evaluate what or how we do things. Would we be better off if we intentionally removed certain responsibilities? Might we not be even more profitable and happier? 

Two things–more than anything else–will sap your energy and productivity: (1) difficult clients and (2) unproductive or difficult employees.

The 80/20 rule is applicable in our profession. We make 80% of our money from 20% of our work. And 80% of our headaches come from 20% of our clients and employees. (Were you awake last night thinking about one of these?) While the exact percentages may not be true for you, the concept is highly relevant. 

I’ve given you twenty mistakes that CPAs make. Are there others you would add?

If you found this article of interest, see my post What Keeps CPAs Awake at Night. Also, here are Forty Mistakes Auditors Make.

ASU 2016-14
Feb 12

Understanding the New Nonprofit Accounting Standard

By Charles Hall | Accounting

Are you ready to implement FASB’s new nonprofit accounting standard? Back in August 2016, FASB issued ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. In this article, I provide an overview of the standard and implementation tips.

new nonprofit accounting

New Nonprofit Accounting – Some Key Impacts

What are a few key impacts of the new standard?

  • Classes of net assets
  • Net assets released from “with donor restrictions”
  • Presentation of expenses
  • Intermediate measure of operations
  • Liquidity and availability of resources
  • Cash flow statement presentation

Classes of Net Assets

Presently nonprofits use three net asset classifications:

  1. Unrestricted
  2. Temporarily restricted
  3. Permanently restricted

The new standard replaces the three classes with two:

  1. Net assets with donor restrictions
  2. Net assets without donor restrictions

Terms Defined

These terms are defined as follows:

Net assets with donor restrictions – The part of net assets of a not-for-profit entity that is subject to donor-imposed restrictions (donors include other types of contributors, including makers of certain grants).

Net assets without donor restrictions – The part of net assets of a not-for-profit entity that is not subject to donor-imposed restrictions (donors include other types of contributors, including makers of certain grants).

Presentation and Disclosure

The totals of the two net asset classifications must be presented in the statement of financial position, and the amount of the change in the two classes must be displayed in the statement of activities (along with the change in total net assets). Nonprofits will continue to provide information about the nature and amounts of donor restrictions.

Additionally, the two net asset classes can be further disaggregated. For example, donor-restricted net assets can be broken down into (1) the amount maintained in perpetuity and (2) the amount expected to be spent over time or for a particular purpose.

Net assets without donor restrictions that are designated by the board for a specific use should be disclosed either on the face of the financial statements or in a footnote disclosure.

Sample Presentation of Net Assets

Here’s a sample presentation:

Net Assets
Without donor restrictions
  Undesignated $XX
  Designated by Board for endowment     XX
     XX
With donor restrictions
  Perpetual in nature     XX
  Purchase of equipmentXX
  Time-restrictedXX
XX
Total Net Assets$XX

Net Assets Released from “With Donor Restrictions”

The nonprofit should disaggregate the net assets released from restrictions:

  • program restrictions satisfaction
  • time restrictions satisfaction
  • satisfaction of equipment acquisition restrictions
  • appropriation of donor endowment and subsequent satisfaction of any related donor restrictions
  • satisfaction of board-imposed restriction to fund pension liability

Here’s an example from ASU 2016-14:

nonprofit statement of activities

Presentation of Expenses

Presently, nonprofits must present expenses by function. So, nonprofits must present the following (either on the face of the statements or in the notes):

  • Program expenses
  • Supporting expenses

The new standard requires the presentation of expenses by function and nature (for all nonprofits). Nonprofits must also provide the analysis of these expenses in one location. Potential locations include:

  • Face of the statement of activities
  • A separate statement (preceding the notes; not as a supplementary schedule)
  • Notes to the financial statements

I plan to add a separate statement (like the format below) titled Statement of Functional Expenses. (Nonprofits should consider whether their accounting system can generate expenses by function and by nature. Making this determination now could save you plenty of headaches at the end of the year.)

External and direct internal investment expenses are netted with investment income and should not be included in the expense analysis. Disclosure of the netted expenses is no longer required.

Example of Expense Analysis

Here’s an example of the analysis, reflecting each natural expense classification as a separate row and each functional expense classification as a separate column.

expenses by function and nature

The nonprofit should also disclose how costs are allocated to the functions. For example:

Certain expenses are attributable to more than one program or supporting function. Depreciation is allocated based on a square-footage basis. Salaries, benefits, professional services, office expenses, information technology and insurance, are allocated based on estimates of time and effort.

Intermediate Measure of Operations

If the nonprofit provides a measure of operations on the face of the financial statements and the use of the term “operations” is not apparent, disclose the nature of the reported measure of operations or the items excluded from operations. For example:

Measure of Operations

Learning Disability’s operating revenue in excess of operating expenses includes all operating revenues and expenses that are an integral part of its programs and supporting activities and the assets released from donor restrictions to support operating expenditures. The measure of operations excludes net investment return in excess of amounts made available for operations.

Alternatively, provide the measure of operations on the face of the financial statements by including lines such as operating revenues and operating expenses in the statement of activities. Then the excess of revenues over expenses could be presented as the measure of operations.

Liquidity and Availability of Resources

FASB is shining the light on the nonprofit’s liquidity. Does the nonprofit have sufficient cash to meet its upcoming responsibilities?

Nonprofits should include disclosures regarding the liquidity and availability of resources. The purpose of the disclosures is to communicate whether the organization’s liquid available resources are sufficient to meet the cash needs for general expenditures for one year beyond the balance sheet date. The disclosure should be qualitative (providing information about how the nonprofit manages its liquid resources) and quantitative (communicating the availability of resources to meet the cash needs).

Sample Liquidity and Availability Disclosure

The FASB Codification provides the following example disclosure in 958-210-55-7:

NFP A has $395,000 of financial assets available within 1 year of the balance sheet date to meet cash needs for general expenditure consisting of cash of $75,000, contributions receivable of $20,000, and short-term investments of $300,000. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditure within one year of the balance sheet date. The contributions receivable are subject to implied time restrictions but are expected to be collected within one year.

NFP A has a goal to maintain financial assets, which consist of cash and short-term investments, on hand to meet 60 days of normal operating expenses, which are, on average, approximately $275,000. NFP A has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. In addition, as part of its liquidity management, NFP A invests cash in excess of daily requirements in various short-term investments, including certificate of deposits and short-term treasury instruments. As more fully described in Note XX, NFP A also has committed lines of credit in the amount of $20,000, which it could draw upon in the event of an unanticipated liquidity need.

Alternatively, the nonprofit could present tables (see 958-210-55-8) to communicate the resources available to meet cash needs for general expenditures within one year of the balance sheet date.

Cash Flow Statement Presentation

A nonprofit can use the direct or indirect method to present its cash flow information. The reconciliation of changes in net assets to cash provided by (used in) operating activities is not required if the direct method is used.

Consider whether you want to incorporate additional changes that will be required by ASU 2016-18, Statement of Cash Flows–Restricted Cash. If your nonprofit has no restricted cash, then this standard is not applicable.

You can early implement ASU 2016-18. (The effective date is for fiscal years beginning after December 15, 2018.) Once this standard is effective, you’ll include restricted cash in your definition of cash. The last line of the cash flow statement might read as follows: Cash, Cash Equivalents, and Restricted Cash.

Effective Date of ASU 2016-14

The effective date for 2016-14, Not-for-Profit Entities, is for fiscal periods beginning after December 15, 2017 (2018 calendar year-ends and 2019 fiscal year-ends). The standard can be early adopted.

For comparative statements, apply the standard retrospectively. 

If presenting comparative financial statements, the standard does allow the nonprofit to omit the following information for any periods presented before the period of adoption:

  • Analysis of expenses by both natural classification and functional classification (the separate presentation of expenses by functional classification and expenses by natural classification is still required). Nonprofits that previously were required to present a statement of functional expenses do not have the option to omit this analysis; however, they may present the comparative period information in any of the formats permitted in ASU 2014-16, consistent with the presentation in the period of adoption.
  • Disclosures related to liquidity and availability of resources.
converting scanned images to readable text
Feb 06

Using Adobe Acrobat to Convert Scanned Images to Readable Text

By Charles Hall | Technology

Are you wondering how to convert scanned images into searchable text?

Some scanned documents (PDFs) aren’t searchable until optical character recognition (OCR) is applied.

In the video below, I show you how to convert a scanned document (PDF) into searchable text using OCR. But why would you do this?

Suppose you use your local scanner to scan a 100-page debt agreement. You do so because you desire to electronically search for the words “covenants” and “debt ratio.” Once you create the PDF, you hit “control F,” so you can search the document. But you get a message saying the document is not readable. What should you do? Convert the scanned pages to readable text using OCR. Then you can search for whatever words or phrases you wish. 

Once the scanned document is readable, use “control F” to activate the search box in Adobe Acrobat. Then enter the words you are looking for. This is so much easier than reading 100 pages and still not finding the information you desire.

College aid theft
Feb 05

College Aid Official Funnels Student Funds of $4.1 Million to Herself

By Charles Hall | Asset Misappropriation

Theft from colleges happens more than we think. After all, aren’t these guardians tasked with looking after our children? Even in places where we expect unselfishness, sometimes there’s a bad apple. Today, we review a fraud involving a college aid official. 

The Theft

When I was a student at the University of Georgia, I needed every dollar I could find. I ate my share of cheap hamburgers and peanut butter sandwiches. In the summers, I scouted peanuts and cotton to make ends meet. So when I see a college aid official stealing student money, I wince.

theft from colleges

Picture is courtesy of AdobeStock.com

A New York college aid administrator used a simple scheme to steal $4.1 million of student aid funds. How? She made out financial aid checks to nonexistent students and then endorsed them over to the name of an alias. The administrator set up a bank account in the name of the alias and deposited the checks into the bank account, allowing her to convert the checks to cash.

How long did the theft go on? Over ten years. The fraudster stole most of the money in the last two years of the scheme. As is often the case, the thief became bolder over time. 

How many fraudulent checks did she issue? Over 1,000, each to a different student.

How was the fraudster caught? A change in the accounting system required cross-referencing of financial records.

The Weakness

No one was comparing the checks written to student admission files. Legitimate students have admission and other information that can be used to verify the students’ existence.

The Fix

A person other than the financial aid administrator should compare the student name on the check to student files to verify the existence of the student. If this control can’t be performed for each disbursement, it should be performed on a sample basis, and the persons creating and signing the checks should know their work is being monitored.

This test could be performed by someone in the financial aid office or by an external professional such as a CPA or a Certified Fraud Examiner.

The college can request from the bank the endorsement side of the cleared checks. If the back side of the checks are obtained, then the endorsements can be examined for appropriateness.

Banks Not Providing Cleared Checks

In an effort to save money, some banks don’t provide cleared checks to their clients. And very few banks (if any) provide the copies of the back side of checks. From a fraud prevention perspective, this is not good. Why? Because checks and endorsements can’t be inspected for potentially fraudulent activity. At least periodically, request some endorsements and test those on a sample basis. (The bank may require you to pay for these copies.) Additionally, as I said in another post, someone should be comparing cleared check payees to the general ledger–if not for every check, then at least on a sample basis.

Free Fraud Course

Click here for free ten-day fraud course.

 

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