Once a check is stopped with the bank and voided in our system, we shred it. Our auditors, however, have some desire to see this check, and want us to start filing them instead. I argued that there is no value added from filing versus shredding them. The reason being is that even if we have the voided check in hand, there's no way of knowing whether it has been negotiated simply by looking at that document. With
Voided Check Process
Answers
If a check is voided due to printer problems, then it should be entered into the ERP system as a VOID and paper copy retained. Same applies if it is an EFT/ACH transaction.
If the paper check is lost and Stopped, then how can there be a physical check to file? Document the issuance and adjustment within the ERP, and paper copies for the file. Don't just VOID, that wouldn't leave the trail the auditors are probably asking you about.
You said "We look for things on the bank statements."
Are the bank statements reconciled daily or monthly? Reviewed by a second party than the one performing the reconciliation?
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Yes, we do record all these changes in our ERP as well. Why would we keep a paper copy, though? I guess that's what I'm getting at... what is the point of keeping the check after voiding? I just get the feeling this is a "we've always done it that way" issue.
We do reconcile our bank statements monthly. Though small, we are fortunate to have been able to separate our duties with regard to bank deposits, journal entries, and bank reconciliations, so that no one person has the ability to manipulate the system, and all transactions are very transparent to several others in the office.
You don't have to do or agree with everything your auditors say. You can justify your process/policy/procedure and let them justify their recommendation or position. This is more prevalent with young/new audit staff doing the legwork. The partner in charge will shed light and ultimately decide if it is worth recommending the change.
The trick is finding the right balance between what works for your company (systems/policies and procedures) and the
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Thank you Emerson.
We changed auditors two years back. I warned our CEO who believed that the larger, regional firm we engaged would be the better choice that, they would likely not send a partner or even an audit manger to the audit as our small, local firm of ten years had. I told here that they'd probably send their "green" staff using as a
And, sure enough, that's exactly what happened. Some of the audit team is still in college! It's hard sometimes, to not laugh or get mad when they ask questions right out of the audit manual without even considering the applicability or immateriality involved in our own small agency situation.
But, they're auditors. We are required to have them. And, I have to get along with them for the good of the organization. I do spend a lot of time running interference between that young audit staff and our CEO who they manage to irritate to no end.
More than once, I've had to push back and tell the audit manager who "ordered" some change to our books by presenting differently in the published financial statements they prepared than what I had submitted for their review, that:
"They are my books. You can't change them. You can suggest changes. I'll consider those changes. But, I may or may not adopt them. In which case, you are free to render a qualified opinion."
I haven't lost that argument yet. Nor have they chosen to issue a qualified opinion.
Emerson, You said this so perfectly. I had 35+ years of dealing with auditors, especially new ones. Each and every year you would have to effectively train them as to what it means to be in accounting and make decisions today and not 6-9 months later was frustrating to say the least. Then to have to be told that you MUST do something that really made little or no sense was even more so.
Your words were exactly right for this situation and almost all others. It is something we all should follow. Great advice.
Agreed with Emerson.
It's the auditor's job to ask about the voided checks, not that they truly care because they most likely don't! That type of Conservatism will Never away in the
It's up to you or
You do Not have to Always listen to the auditors as they are Not Always "correct" in management decisions/matters. Unfortunately, there are those in management who do listen to almost everything the auditors 'tells' them to do :(
A compromise:
Keep the voided checks in a small box. Scan the checks on a routine schedule (i.e. monthly, quarterly, etc...) and save it on your network in a particular place (i.e. Auditor's folder) then shred them.
You no longer have a bunch of Voided paper checks and scanned documents are enough of a 'paper' trail for auditors (scanned documents are 'allowed') ;)
Good luck!
If companies used electronic payments, the topic of retaining "voided checks" would disappear:)
Ask Europe and the rest of the modern world.
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And then we need to move to IBAN :)
I always have this comment when it comes to the US adopting other standards....
We can't even force ourselves to shift to metric!
The answer is we don't understand Base 10 in the US, hence we use every other base, changing bases for different standards.
Here's a good example:
I know someone who is a diamond dealer. Diamonds are sold by carat weight, and each carat has 100 points. 1 carat is about 200mg.
Gold and silver (and other precious metals) is sold by using either pennyweights (dwt) or grams. 1 troy ounce is 20 dwt.
There are 31.1035 grams to a troy ounce.
A troy ounce is equal to 1.09714 ounces.
Confused yet...
Len; yes. Our Big4 firm demanded all the paper checks from our Euro subs. Their partner firm in Europe called me and basically asked "can you explain modern banking to XXX?" One in a long list of reasons we fired them. Worst may have been failure to file the water's-edge election. Groan.
Technically, anything with your account number and signature can legally be a check (or demand draft), so the concept that checks are "magical" is really just magical-thinking by auditors that there is control in retaining old checks. There isn't. Quite the opposite (bleaching voided checkstock is a thing http://www.ckfraud.org/washing.html). So, you *are* doing the right thing and your auditors are misguided.
Per Emerson, have a process. Document the process. Follow the process. I personally like retaining scanned copies of the voided checks. This actually came up in a court case for me (some fraud occurred), and having those scans saved my bacon...or at least made it a "slam dunk" that the fraudster was in the wrong. Reasoning here: basically, prove that Check#123 was not issued to Joe Fraudster. We also black-out sensitive data (acct #, signature, etc) to make reproduction from the scan difficult.
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Keith,
Thank you. May I ask a follow-up question? All the check information is captured within our ERP, so we can show through a variety of reports, who the check was made out to and to which address. Was this not an option with your system? Is that why you had to rely on the scan of the paper copy?
This is a great example of how automation and electronic payments can eliminate unnecessary headaches and streamline your process. You can have any and all documents/information associated with payments stored electronically and backed up. The rest of the modern world gets it and so should we here in the US. MineralTree can help organizations take those steps. www.mineraltree.com