(How to) Hire a Bookkeeper (competent)

Posted byWilliams Accounting LLCPosted inBookkeeping

GIGO – Garbage In, Garbage Out

“No matter how well a model is set up, if the inputs used aren’t accurate then the output won t be accurate, either.”

Brigham, E. F. (20100303). Financial Management: Theory & Practice, 13th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://1111894922

As I have stated in another post (Tax Tips & Strategies):

Scenario: You just started a business. You took an accounting class in college. You want to save money. You have a QuickBooks account. There are negative numbers on the financial statements. “Being cheap is very expensive”. the less organized your books the more time it takes an accountant to prepare the financial statements thus charging more (see Things Your CPA Will Not Tell You). Even if it is just once a year hire a bookkeeper (certified) to clean up your books before filing taxes and most importantly make sure to reconcile the end-of-year account balances to match the tax return.

As a business owner, you are focused on providing quality services or products to your clients and all that entails (e.g. marketing, networking, managing inventory, employees, etc) many decisions depend on understanding the state of your business. Is my business growing over time? What are my recurring monthly expenses? In what months does business slow down? Do I have enough cash to pay my fixed expenses during the slower times of the year? Accurate and timely information can aid in decision-making. This is why high-quality bookkeeping is essential.

Purpose:

  1. To prevent and detect Fraud
  2. To ensure the accuracy of financial reporting for:
    • Loan Approval
    • Government Grants
    • Investors
    • Audits
    • Budgeting & Forecasting Decisions
  3. To tie transactions to source documents (i.e. bank statements, checks, credit card statements, loan statements, invoices, bills, receipts) in case of an audit:
    • Ensure all transactions are recorded
    • Eliminate duplicate transactions
    • Ensure all products/services are correctly marked as taxable or nontaxable
    • Ensure Accounts Receivable and Accounts Payable are up to date to make accurate Cash Flow Management decisions or Forecasting predictions.
    • To track Inventory in real time to discover theft, obsolescence, or damaged products.
    • Ensure all loan principal and interest payments are recorded correctly
    • Ensure Sales Tax and Payroll Tax liabilities are recorded correctly and paid on time.
    • Ensure Fixed Assets are recorded correctly as either an asset or expense.
    • To tie the end-of-year statements with filed tax return

History:

Initially, accountants in the U.S. used to offer bookkeeping as a part of their services and tax preparation as a bonus. Somewhere along the way, accountants became hyper-focused on preparing taxes and began treating “bookkeeping” as a separate skill outside of accounting. Bookkeeping classes used to be offered in high school much like trade skills but sometime during the 1970s(?) or early 1980s(?), colleges, and universities advocated for the government to push the next generation of kids towards what used to be very cheap higher education.

As bookkeeping became a separate profession, bookkeepers’ wages stagnated. These low wages diluted this profession over time. Today there are many individuals who say they are bookkeepers but few with the required knowledge of both bookkeeping and accounting. In the last few years, the accounting profession has also had an inability to retain accountants because of the over-reliance on tax return preparation as a means to make money thus overworking new accountants for very little pay.

I thought getting a salary meant something, oh how naive I was. ” Do not calculate how many hours you have worked this year with your yearly pay, you will be sad.” And I was. My approach is to go back to the original way of servicing clients by encompassing all accounting and financial management services. I do not want to overwork myself, and my staff or stress. I cannot handle all the tasks myself. I recognize my skills and those I lack and seek an expert.

Common Pitfalls:

  1. Hiring family to prepare the books
    • I have tried to clean up books prepared by family members. The books are always messy, using either paper record-keeping or manually adding transactions to QuickBooks Online. No checklists, procedures, or policies are followed. When I ask for source documents, the business owner gets defensive, the bookkeeper [e.g. sister, sister-in-law, ex-wife (yes!)] gets defensive, and the work stalls. Business owners in this situation usually do not seek help until the extension date, audit, or government report (non-profit) is looming, by then they are stressed and angry and undesirable clients.
  2. No Segregation of Duties
    • Allowing one person too much access; having one person prepare the books, the payroll, and pay vendors and bills.
    • A bookkeeper should have no access to any cash account (except Petty Cash, maybe) including bank and credit card accounts. Access should be limited to statement retrieval only.
  3. Improper Record-Keeping Procedures/Policies
    • “The proper assignment of personnel, adequate record-keeping procedures, and independent internal verification of information in the records are useful controls… The client should also have well-defined policies.”1
  4. Improper Internal Controls
    • “Internal controls are a system of checks and balances designed to prevent and detect fraud and errors. Most companies have these systems in place, but many have never completely documented them.”1
    • “Recently, 424 companies reported deficiencies in internal control. Many problems involved closing the books, revenue recognition deficiencies, reconciling accounts, or dealing with inventory.” 1
    • Bookkeepers should not have permission to make payments. Bookkeepers should only be recording payments based on documentation.
    • No one person outside of the owners of a small business should control the record-keeping, payments, and payroll duties. Outservicing these services can also be an inexpensive option.

How to Hire a Bookkeeper

Hiring a good bookkeeper is tricky, luck plays a big part. I was preparing a tax return for a business that hired a bookkeeping company to prepare the books for tax time. The company consisted of three employees with at least five years of experience. I noticed an expense for this real estate company that was definitely a personal expense. When I asked the bookkeepers why this babysitting expense was included with the business expenses the bookkeepers got defensive and answered, “We do not appreciate you questioning our experience, we do what the client tells us to do”. A good bookkeeper should have bookkeeping knowledge and follow accounting principles. A good bookkeeper should know the difference between personal and business expenses.

The first thing I ask for when I get a new client is for a copy of the previous year’s tax return, I start by examining their Chart of Accounts to ensure they align with the tax form. I ask for all documentation from bank and credit card statements to loan documents. A good bookkeeper should have a checklist that lists the steps they follow from start to completion. If your newly hired bookkeeper does not start with these steps I would be apprehensive about keeping them long-term.

If I was hiring a bookkeeper that I was unfamiliar with and I do not care how much experience they say they have, I would require them to take a bookkeeping test or two to prove their knowledge.

Bibliography

1. (Kieso, 02/2011)Kieso, D. E. (2011). Intermediate Accounting, 14th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9781118233641

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Published by Williams Accounting LLC

Williams Accounting LLC is a Las Vegas-based accounting, tax, and financial consulting firm that works with clients to achieve the best solutions for their business.

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