The Issue

The Case for Contemporaneous Records

The government bailout of small business is just another reason

By Chris Chillingworth
Partner, CFOs2GO
By Michaele James
Partner, CIOs2GO

Ladies and Gentlemen of the Jury:

Opening Argument

The case for the maintenance of contemporaneous records is not a new one. For decades, the Internal Revenue Service has mandated the maintenance of contemporaneous records for travel and entertainment expense (the who, what, when, where, why required for business expenses not to be considered personal and non-deductible) and business use of a personal automobile (Schedule C, Part IV, Question 47b). The Paycheck Protection Program (PPP), which provides the forgiveness of loan within 8 or 24 weeks of funding, is simply another reason.

Opposing Argument

I keep my receipts in a shoebox and give them to my C.P.A. in April each year. I’m just too busy to document transactions as I go. I balance my checkbook when I can, and I pay outside accountants to keep my books straight, but don’t receive reliable information for six to eight weeks.

The problem with the Opposition

  • You don’t have up-to-date information to make actionable decisions
  • You can’t respond to opportunities the moment they arise
  • Modern technology in financial systems and cell phone applications makes the maintenance of contemporaneous records virtually instantaneous and effortless.
  • The time you save today will be spent in the future, either by you or someone you hire.

Let’s tackle these issues head-on:

Actionable Decisions

Significant strategic and tactical corporate decisions are not made in a vacuum. The possible exception is a solo-entrepreneur, who runs his/her business by the seat of their pants and takes risks (not necessarily “calculated” risks). According to the Bureau of Labor Statistics, “…approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.”[*] Not enviable statistics. The top six reasons businesses fail generally result from poor investigation, decision-making, and planning [*].

Decision-making in larger organizations generally follows a process. And part of that process is knowing where you are. Successful small businesses operate under a “check-book” mentality, always knowing what they have in the bank, what cash coming in the door, and what cash is going out in the not-too-distant future. Even larger businesses have grown over the years and implemented the “application-of-the-day” which is not fully integrated such that not all the constituent executives have access to the most current data in a timely and efficient manner. Disparate legacy systems can depend on manual entry, embodying delays in transaction processing, and introducing the probability of errors in data entry, duplicate records, or dissimilar records of the same transaction based on different input sources.  Good business practices demand that records be kept timely, accurately, and contextually (the who, what, when, where, why).

Response to Opportunities

A business’ ability to respond to opportunities depends not only on knowing where you are, but also on careful planning that is being updated constantly. Conditions are always changing, and the organization that is adapting to change the quickest will likely be able to adapt and respond to opportunities, as they arise, because they have planned for them.

No one could have predicted the impact of the coronavirus in early February 2020. But the coronavirus is a once in a lifetime occurrence. Other conditions are more predictable. For instance, with the oil market in the tank (oil producers recently paid wholesalers to take oil off their hands), would this have been a good time for the airlines to negotiate long-term fuel contracts, as Southwest Airlines has done in the past?

Financial Systems

The means by which to transact and collect contemporaneous data, in many cases, in real time, is staggering. The advent of the cloud, the preponderance of software developers, the cheapness of computer memory, the widespread adoption of laptops, cellphones, and wearable devices (the Internet of Things), and market-driven demand that these systems “talk to one another” have converged to make contemporaneous record-keeping universally available. The Software-as-a-Service (“Saas”) model of delivering solutions over the Internet, has largely replaced on premise or desktop software, with the benefits of replacing large upfront costs with subscription pricing, and providing secure, global access to data anytime  / anywhere through the use of ubiquitous handheld devices nearly everyone owns.

The following systems are but a sampling of the applications that exist today to make transaction processing as simple and efficient as possible. (Note: the mention of a system below is meant to be an example, and not necessarily an endorsement of that solution.)

  • Cloud-based Enterprise Resource Planning (“ERP”) systems, such as NetSuite, SAP, and Quickbooks Enterprise, have made access to fully integrated, fully functional accounting and planning systems available to smaller enterprises, that can be accessed globally, without the large investment in on-premise hardware, software, and IT support. Integration ensures that transactions are entered once and become the “single of source of truth” for the enterprise. Secure global access via handheld devices provides for the timeliness of entry. The subscription-based pricing model and the shifting of back-office resources to a third party lowers both the upfront cost and ultimately the total cost of ownership.
  • Planning systems, such as Workday Adaptive Planning, and NetSuite’s Financial Planning and Analysis products (formerly Hyperion), often come as an integrated component of their larger ERP systems, yet can be licensed as standalone products to work with other ERP systems. These solutions are designed to provide enterprise-level budgeting, forecasting, and reporting software as an alternative to error-prone spreadsheet-based planning. Functional areas include sales, finance, workforce, project, capacity and operational planning. Fully integrated systems use the company’s actual data for baseline cases upon which various current and future scenarios can be built.
  • Fin Tech Systems / Treasury Management  provide full access to the international banking system, supporting funds transfer, data downloading, electronic deposit, positive pay, loan administration, and currency trading).
  • Point-of-Sale (“POS”) / Merchant Processing Systems provide the retail industry with online, real-time transaction processing, debit/credit card access, inventory management, payroll support, cost control, order processing, and immediate or next-day funding of retail sales).
  • Time and Billing, such as Timeslips, provide real-time capture of time, essential for professional billing and project management.
  • Procurement applications, such a Procurify, provide spend management, purchase order processing workflow, approval control, real-time budget tracking, and analytical reporting.
  • Accounts payable systems, such Bill.com, which collects invoices received electronically, as an e-mail attachment or scanned from hardcopy, saves them in a single addressable location, stores the relevant data from the invoice (vendor, date, reference number, product detail, pricing, etc.), categorizes the purchase using artificial intelligence (AI) technology, routes the purchase for approval using established workflows in a paperless process from any device, and then, upon approval, processes the payment in accordance with the vendor’s acceptable payment method, including virtual card, ACH, paper check, or international wire transfer in either US dollars or foreign currency.
  • Procurement applications, such a Procurify, provide spend management, purchase order processing workflow, approval control, real-time budget tracking, and analytical reporting.
  • Accounts payable systems, such Bill.com, which collects invoices received electronically, as an e-mail attachment or scanned from hardcopy, saves them in a single addressable location, stores the relevant data from the invoice (vendor, date, reference number, product detail, pricing, etc.), categorizes the purchase using artificial intelligence (AI) technology, routes the purchase for approval using established workflows in a paperless process from any device, and then, upon approval, processes the payment in accordance with the vendor’s acceptable payment method, including virtual card, ACH, paper check, or international wire transfer in either US dollars or foreign currency.
  • Travel and Expense applications. These applications like Expensify and SAP Concur, are no longer simply a high tech means of completing travel and expense reports. At least one of the products enforces travel policy at the booking end, as well as throughout the trip, and allows images of travel receipts to be captured in a cellphone then annotated to conform to IRS guidelines, accepts  electronic

  • records of hotel receipts segregating costs into various categories (room, food service, in-room movies, alcohol, parking, etc.) from a single bill using AI technology, then processes the report through an approval workflow that results in a direct employee reimbursement.
  • Good ‘ol Excel. Many of the vendors providing the services highlighted above, outside the integrated ERP solutions, will tell you their number one competitor is Microsoft Excel. The spreadsheet, being one of the first applications for the personal computer back in the 1980’s, is a powerful, flexible, inexpensive and virtually universally-used application. Excel’s ease of use and flexibility, while its greatest strength, are also its greatest weakness. The ability to unintentionally write-over formula cells with hard-coded data, to inadvertently import partial data to a workbook, to cross-reference the wrong cells in error, create formulas that address the wrong data, etc. are the reason that spreadsheet controls have become a major area of third-party CPA audit interest, particularly in areas where the accuracy of reported financial results is dependent on a spreadsheet.

Administrative Time

The mobile workforce, in particular, has focused managements on the need to develop systems which work remotely, capture data timely and efficiently, summarize and report results instantly with full drill-down capability.

The time necessary to enter data in real time, on the go, can be usually be measured in seconds or minutes, using a broad array of commonly available electronic devices, such as laptops, cellphones and tablets. Use of the appropriate integrated systems guarantees that the data gets entered once, and is immediately shared with every relevant subsystem, ensuring that all the various subsystems are reporting the same data at the same time, a “single source of truth,” to quote the trademark of a well-known ERP vendor. When delayed, the time necessary to compile and enter stale data is compounded, often with much of the meaningful context lost. A cardinal rule of time management is to only handle a document once, deal with it, and move on. Procrastination is no longer an option.

Closing Arguments

Your Honor. The Prosecution has made a compelling case and now rests.

The Opposition

Pleads “Guilty” and provides no rebuttal.

    

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