Dodging Accounting Discrepancies

Tuesday July 26, 2022 comments

Any accounting business and tax advice contained in this podcast is not intended as a thorough in depth analysis of specific issues. Nor is it a substitute for format information. Nor is it sufficient to avoid tax related penalties. If you have specific questions that you need advice for, be sure to schedule a strategy session and not solely rely on information in this podcast.

Hey, is Chyla Graham CNRG Accounting Advisory. This season, I am taking articles from the newspaper and addressing what I think people really mean when they say I don't want to end up in the news.This season, what I wanted to focus on was news. So I'm going to take an article, I'm going to pull out some bits of it to say like, this was what was said to have happened, and what I think could be done by other organizations to prevent it from happening to them.

So this week's article is from the Palm Beach post, it is titled Scripps to pay $10 million to settle a lawsuit tied to Juniper whistleblower. So in this case, there is Scripps Research Institute, they do some value medical research, they're out in California. And the lawsuit was about misuse of federal grants. In this case, federal officials are accusing Scripps of improperly charging funds. So they charge the grant for work that had not yet been done. So sort of like pre-billing. Also, Scripps has also been accused of not providing an effective accounting system to the researchers for 2018 to 2016.

In this case, what I'm assuming is that the researchers are the ones who are responsible for putting in the data and doing that. So here is where I think things go awry. One, you have the researchers doing the accounting. I understand that we all wear many hats with a nonprofit, we all do lots of roles, but also making sure that you have the right people in the right places. You want to have someone who's understanding accounting, and who can talk with the researchers in a regular manner to get the documentation they need.

That way the researchers are turning in what's necessary. And there's someone with the appropriate accounting understanding who can translate that into the system, so into what needs to be put into the grant reporting. That way, you're not overworking people, making them use a skill set that they don't naturally have, or they haven't been trained in, and then turning around to be like, Hey, we messed up. And then the other thing that I wanted to point out is that the organization says, Hey, it was an accounting discrepancy why we misbilled. Since this is happening over multiple years, so this isn't like a one time occurrence, not catching this, to me is a big red flag.

So in addition to having people trained in the role, so that you have someone who's trained in accounting, someone who has some familiarity, who's willing to ask questions, you also want to make sure there's someone who's reviewing the accounting. So that can be an internal type process, as well as having an outside auditor.

So from an internal process. To me, that looks like actually reviewing the financial reports, reviewing the grants before you bill them. So like drafting out the billing and saying like, hey, what does this really mean? When we say these things in here are we actually charging them again, for services that we haven't yet done? Because the case here, they're saying like, yo, you've charged us for work on future grants.

So stuff that hasn't happened yet you're charging us for and that's not right. So having sort of, like, look over those reports, and be like, Oh, is this even accurate? Are we miscoding things? Are we putting things into the wrong area? And then, of course, the oversight, you can have an annual audit. But you don't always have to, you really could just say, internally, are we reviewing this? Do we have the necessary backup so that we know that things are right and appropriate? So for you, how will you get back out and make sure that you are in the right place, that your organization is not showing up on the news because you have an accounting discrepancy?

You want to do at least these three things:

Get an accounting system that is appropriate for the work that your organization does. Not everyone needs Great Plains. Not everyone needs QuickBooks. Some organizations genuinely could use a spreadsheet. However, you want to make sure that whoever's updating the spreadsheet or QuickBooks or Great Plains understands what information needs to be going into your system. Whatever that system looks like.
Have a person who understands how to use the system.
Have someone who's reviewing that work, someone who knows, understands enough about the work that's going on, who can look at the reports and say, Hey, it looks weird that we've billed them for stuff for 2022. And we're still in 2021.

So those types of things can be really easy to catch, even if you're not an accountant. So having someone who's willing to ask those questions and just say, this looks weird to me. Can you explain? So go back to your organization, see what's missing. See what you need to do to make sure that it is set up in a way that supports you and prevents you from being in the news for this type of thing.

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