Plug (accounting)

A plug, also known as reconciling amount, is an unsupported adjustment to an accounting record or general ledger. [1] Ideally, bookkeeping should account for all numbers during reconciliation, i.e. when comparing two sets of accounting records to make sure they are in agreement. However, discrepancies, i.e. unintentional accounting errors can occur, for example due to data entry, or an adding or a rounding error. An organization may use a plug for an immaterial amount, because it may not be cost effective to search through numerous pages of transactions to find the error. The acceptability of a plug depends upon the amount: a plug must be immaterial in order to be justified.

Definition

“Plugging is the use of false numbers in financial ledgers that forces balances, and effectively masks accounting errors and control deficiencies".[2] Dependence on plugging has been described as "indicative of a dysfunctional finance and accounting system". [2]

Examples

Accounting malpractice at the US Defense Department was investigated in 2013 by Reuters.[3] At the Defense Finance and Accounting Service (DFAS) superiors ordered accountants to make “unsubstantiated change actions”, enter false numbers, commonly called “plugs”.[4] In the Cleveland DFAS office, “unsupported adjustments” to “make balances agree” totaled $1.03 billion in 2010 alone, according to a December 2011 GAO report.[4]

Difference to creative accounting

Creative accounting may follow the letter of the rules of standard accounting practice, yet deviate by excessive complication creating opaqueness, whereas plugging the numbers deviates from accounting rules for a relatively "immaterial amount".

See also

References

  1. ↑ "Senators Press Defense Department to End “Plugging” Numbers -- false numbers mask accounting and control deficiencies". Senator Charles Grassley. June 12, 2014. Retrieved 16 June 2014.
  2. ↑ 2.0 2.1 "Senators Press Defense Department to End “Plugging” Numbers false numbers mask accounting and control deficiencies". Gatehouse Media, Inc. Nebraska City News-Press. 13 June 2014. Retrieved 17 June 2014.
  3. ↑ Scot J. Paltrow and Kelly Carr (2 July 2013). "Unaccountable-The high cost of the Pentagon's bad bookkeeping". Reuters.com. Retrieved 16 June 2014.
  4. ↑ 4.0 4.1 Paltrow, Scott (18 November 2013). "Behind the Pentagon’s doctored ledgers, a running tally of epic waste". Reuters. Retrieved 17 June 2014.