How do you evaluate your in-house bookkeeping?

When we’re contacted by potential new clients and meet with them for our initial consultation, some of the questions we ask are:

• Who does your bookkeeping currently?
• Does your CPA send you back adjusting entries to enter in your accounting system after they are done reviewing/fixing your file?
• If they do send back adjusting entries, how many are there (or how many pages)?

The reason we ask these questions is it gives us good feedback on how competent the client is doing their own bookkeeping and if the CPA is looking after that client’s best interests.

Let’s start with the first point – whoever is doing the bookkeeping (in-house bookkeeper/officer manager, owner, or outsourced vendor) can objectively be evaluated simply on how much work the CPA has to do at the end of the year to fix the accounting records.  If you’re only getting one or two entries back each year from the CPA (Depreciation is typically one of them), then we can assume the bookkeeper is doing a good job.  If you’re getting dozens of entries (several pages) back each year, then we can logically assume your bookkeeper doesn’t really know what they’re doing.  This situation is bad on two levels.  The first is, now you know your books are messed up all year long and if you’re making business decision based on those books, well, you can finish that thought!  It’s also bad because you’re not only paying your bookkeeper a salary/wage to do the work the first time, but now you’re paying additional money to your CPA (at a pretty good rate I imagine) to fix the work and do it a second time!  A change probably needs to be made.  The result will be that your CPA gets a clean set of books at year end and consequently your invoice from your CPA should be less.  You also may get your tax return completed much sooner.

Now to the second point – evaluating the CPA relationship.  It’s not uncommon for us to get a client file at year end and see that it’s a mess. Not only is the file a mess, but we can’t reconcile the trial balance to the tax return. We know they have a relationship with a CPA so we question why the file is so “out of whack” if the CPA is sending back adjusting journal entries after they’re done with the file.  9 times out of 10 they’ll tell us they never get entries back – they just send the file off every year and get their taxes done. (the one other time the client loses or forgets to post the entries)  Now I can’t speak for every firm but that would make me question the integrity of that CPA.  Why not send those entries back to the client so they’re running their business from a clean, accurate set of books?  Are you keeping the file a mess because you know you’ll get more fees if you get to fix the file every year??  What about the feedback to the client – As the business owner, wouldn’t you want to know if your bookkeeper was doing a good job?  Without that feedback, your bad bookkeeper goes undetected!  That’s not client service.

Hopefully this helps you understand the year end process better and what you should be looking for as a tool to evaluate your current bookkeeping situation, as well as your CPA relationship.  This will help hold everyone accountable.