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WHAT TO LOOK FOR IF YOU THINK THAT YOU MAY HAVE HIRED THE WRONG BOOKKEEPER

Bookkeeping Headaches

You have a small business and thankfully you’ve grown to a good enough size that you can outsource some of the boring tedious bookkeeping tasks to a bookkeeper or bookkeeping service. You’ve talked to a few different people, researched prices and settled on one that you think will be pleasant to work with at the right price. After about a year of using this service you have a sneaking suspicion that something is off. But how do you know? You don’t have a degree in accounting and really hate having to deal with this stuff.

Here are just a few things we look for when evaluating if company has an inexperienced bookkeeper.

YOUR BALANCE SHEET HAS A LOT OF NEGATIVE BALANCES

Except for a few balance sheet accounts such as Accumulated Depreciation and possibly an Equity account or two, you shouldn’t really see any negative balances on the Balance Sheet. When I look at a new client’s financial statements the first thing I look for is negative balances.

If I see a negative balance in a credit card account, that tells me the business likely has not posted expenses from that credit card account or that a payment might be recorded twice. It is far less likely that a company is overpaying their credit card bill which can also result in a negative balance.

If I see negative balances in a payables or receivables account, there are several things that could have gone wrong. This usually indicates that your bookkeeper has not been trained about how to properly use the accounting software or doesn’t understand the difference between cash and accrual accounting. These are the most time accounts to clean up. As soon as you see these two accounts go haywire, stop and replace your payables/receivables person or get them trained on the software ASAP!  

If your business cash accounts show a negative balance that might indicate that the account might soon be overdrawn or that deposits have not been posted to the books in a timely manner. These negative balances may also indicate that your bookkeeper has not reconciled your cash and credit accounts to the monthly statement and that you may have old uncleared checks from years past still on the books. Reconciliation of cash and credit accounts should happen every month so that you don’t get to far down the road without addressing errors that could harm your ability to make informed decisions about how to manage your business best.

YOUR CASH AND CREDIT CARD ACCOUNTS ARE NOT RECONCILED

If you have used QuickBooks (Online or Desktop) or Xero, you may be familiar with the easy import of banking transactions and the auto matching feature that both programs have. Though convenient and timesaving the banking import is no substitute for a monthly bank reconciliation.

Reconciling the bank accounts each month will do the following:

  • Identify lost checks, lost deposits and unauthorized wire transactions.
  • Detect and prevent excess/unjustified bank charges and ensures transactions are posted correctly by your bank.
  • Detect and prevent embezzlement of funds from within your company.
  • Know how your business is doing? You can't really know unless all accounts are reconciled and properly accounted for on your financial statement.
  • Manage your cash more effectively. Proper management of funds not only saves money, it makes money for you.
  • Protect yourself. By timely reconciling and promptly objecting to your bank about any unauthorized, fraudulent or forged checks presented to your bank and paid by that bank, you can relieve your agency of responsibility for the shortfall and transfer the risk to the bank. This reason to reconcile alone should be enough. Crime exists.
  • Sleep Better. You will sleep more peacefully at night knowing your bookkeeping is accurate, in balance and that all escrow funds, accounts, checks and disbursed funds are properly accounted for.

THERE IS AN ACCOUNT CALLED RECONCILIATION ADJUSTMENTS ON YOUR BOOKS

This should never happen. If a bank account won’t reconcile it’s the bookkeeper’s job is to find the discrepancy and fix it. Forcing a reconciliation using this account is a dead give away that you’ve hired the wrong person. The best bookkeepers won’t use this type of an adjustment even for a one cent discrepancy. It’s a huge no no. If you see this type of an entry anywhere in your books – fire your bookkeeper immediately. It’s a lazy way to cover up bad work, or worse, crime.

THERE IS A LARGE BALANCE IN YOUR UNDEPOSITED FUNDS ACCOUNT

Undeposited Funds is an account that QuickBooks uses for grouping together several checks in a single deposit or for tracking checks received but not yet deposited at the bank. If you see a balance in this account that is larger than any of your regular deposits, it’s a sign that something has gone wrong with the recording of revenue on your books. This can indicate that deposits are being recorded twice; once as a payment against an open invoice and again as a deposit into your checking account. If you were to run an accrual basis income statement your revenue would be overstated leaving you to believe that your business has earned more money than it really has.

YOUR BOOKKEEPER DOESN’T PREPARE MONTHLY FINANCIAL STATEMENTS

A good bookkeeper will be proud of their work and want to show you the results each month. If you are not getting monthly financial reports, chances are your bookkeeper doesn’t want you to see the errors on the books. Or they don’t feel confident in the numbers because the accounts have not been reconciled.

YOUR BOOKKEEPER CAN’T ANSWER YOUR QUESTIONS

Your bookkeeper should be intimately familiar with your books. He or she should be able to quickly answer any questions and more importantly should offer suggestions for best practices and how to improve your internal processes. Your bookkeeper should be able to explain the difference between cash and accrual financial statements and what accounts belong on which financial statement. They should also know if an account should have a debit or credit balance. It’s okay if the business owner doesn’t know these things but your bookkeeper should be able to explain them to you. If you sense too much hemming and hawing when asking direct questions, you’ve got the wrong person working on your books.

These are just a few of the things we look for when we do a full evaluation of a new client’s books. We also look for potential larceny and weaknesses in internal controls.  In my career I’ve discovered hundreds of thousands of dollars in theft from bookkeepers and I’m always on the lookout for this whenever I review a new set of books.

Contact us here to get a free quote. We can help clean up the mess quickly and get you back on track.


Karyn Boatman | 06/10/2018



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