Worst Bookkeeper Errors

And How to Protect Your Business

Bookkeeping is roughly 90% repetitive and 10% complex transactions

And it is this 10% complexity where most of the errors occur and unfortunately this has two major impacts on your accounts:

* Usually these complex transactions are also the larger financial ones – so errors here create larger skews in your reports
* Because of the complex nature, most business owners remain unaware of errors and without a vigilant accountant the mistake can remain unchecked

No-one expects business owners to be accountants, however a regular basic review of your own business finances is a must!

Recently an OECD Survey showed a very high correlation between financial knowledge and successful wealth creation which basically boils down to:

If you don’t know much about managing money
you are more likely to go broke – Duh!

(For more on this see How to Go Broke Fast)

So, the easiest way to tell if your bookkeeper is fantastic is to firstly gain a basic understanding of accounting and be able to check the following areas of work – if they are all under control then you can be fairly sure your Bookkeeper is too. Hang-on, before you start moaning that you HATE ACCOUNTING – remember Accounting is nothing more than a way of representing what has happened to your money then you can use that information to drive good (profitable) outcomes.

Starting with the very basics, your Accounts are made up of Two Reports:

1. Your Profit & Loss Report – Details of what came In and went Out of your business
2. Your Balance Sheet – Details of what your business now Owns and Owes as a result of what came in and out.

(For more information on this see 3 part series on Income Statements Explained)

By knowing these two simple definitions it is pretty easy to do a check and make sure everything is being allocated correctly. But, if you are unsure, concerned or confused ASK YOUR ACCOUNTANT! – Yes I have made that very loud, and it also bears repeating Ask Your Accountant!…. Accountants actually do want to help, and usually are really happy to answer a quick question about allocation upfront rather than having to spend hours of boring fixing (which costs you $$) at a later stage.

Worst Bookkeeper Errors

1. Not Finishing Everything

Problem: All your Bookkeeping is not completed each time, so some tasks are never being addressed. There may be one of two problems here (but rarely both) so either:

* there is too much work to be processed within the allotted time-frame
* your bookkeeper is inefficient

Solution: Check with your accountant how much time they estimate should be spent each week and then ensure you have the right resources for the right period to get the job done well.
A good bookkeeper will: Keep you abreast of unfinished tasks on a daily and weekly basis, be transparent about how work is prioritised, and request more hours or resources when things have grown.

2. Not Filing and Archiving

Problem: You are legally required to keep all your receipts and invoices for every single purchase and sale of all goods and services – these need to be held for between 5 and 10 years (depending on your legal jurisdiction). This is to support your case should you be sued or need to sue someone else, and to justify to the Tax Man any claims you may make – if you don’t have the documentation to back it up, you may be denied your claim and fined.
Solution: Include accurate and timely filing of paperwork as part of the Bookkeepers Job Spec “Create and maintain a document filing systems which ideally will be simple and preferably paperless with back-ups”. Most current Accounting Programs enable scanning and uploading of paperwork within a relevant spot electronically, which saves on physical office-space, irrespective of paper or not, make available enough folders, filing cabinets, software etc to do this job well.
A good bookkeeper will: Enable you, and your accountants, or tax auditors, to have easy access to any information as required

3. Ineffective Reconciling

Problem: Whilst the main Bank Account may be regularly checked the rest of your Asset and Liability accounts are not reconciled for long periods of time, if ever. The reconciliation is a comparison between what you actually have and those recorded in the system; In the case of the bank reconciling compares your accounts to the Bank Statement, in the case of your Stock, it compares your Accounts to your physical stock on hand. Also, if you see reconciliation adjustments, your bookkeeper is doing something wrong – adjustments only occur when the actual error is not located and amended properly
e.g. Recently a bookkeeper did not reconcile the Tax Office Account; as this client had a running balance that was being paid off the Tax Man was happily charging interest and penalties that were not showing in the Accounts. The client thought it was a free loan and priorities re-payments last – but once the account was reconciled he became aware of the large interest rate, and re-priorities accordingly.
Similar errors are also very common for Leases and Hire Purchases, as well as inter-entity loans where the Government requires interest to be charged.
Solution: Ever thing you Own and Everything you Owe must be accounted for and up to date – stock-take regularly, review Assets and if you replace them make sure the old ones are out and the new ones in, make sure your Loan Accounts all agree to the statements you receive, including your lease statements.
A good bookkeeper will: Balance all the Books at least Monthly, checking every Balance Sheet item, not only the Cash ones.



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4. Not Working WITH your Accountant

Problem: Your Bookkeeper is most likely, not as qualified as your accountant, which means they don’t necessary know how to correctly handle everything. So when it comes to that complex 10% there can be guessing, thinking ‘near enough is good enough’, as well as ignoring issues and omissions. This creates a plethora of problems and the main areas I see this are below:

a. Payroll and Superannuation Errors – Entitlement issues, tax issues, long-service leave issues, being calculated and paid incorrectly
b. Compliance Responsibilities – Insurances, Taxes and Annual Returns etc being calculated incorrectly or submitted late
c. Coding Errors – Incorrectly categorising Income, Expenses, Assets and Liabilities can lead to incorrect profits and therefore incorrect taxes as well (this is particularly true for separating personal items from the business accounts). If you “spend” $8k on a race-horse it is not deductible as an “advertising” expense.

Solution: Enable strong lines of communication between your Bookkeeper and Accountant – this will save you money in the long run. The more work bookkeepers complete at their lower rates, the less has to be done by the Accountant at a higher rate
A good bookkeeper will: Check all work for errors and typos by reviewing your Reports regularly (at least monthly) AND

briefing your accountant (as well as advising you) about the 5% of most complex transactions ensuring both the Bookkeeper and Accountant agree on the method of accounting for these. This includes working with the Accountant to incorporate and Year End Adjustments.

5. Not monitoring Cashflow

Problem: Cashflow is the life of any business, ensuring your Debtors pay you promptly and your bills are paid on time is a key part of this role, so if your bookkeeper is not paying attention to getting the cash in and metering the cash out, you can easily end up insolvent.
Solution: make sure the following tasks are completed as often as possible (daily is best):

– CASH IN: Invoicing, Debt collection and Receipts processing
– CASH OUT: Purchases (and Purchase Orders if required) are entered into the system as Accounts Payable when they are made with due dates (and paid the day before due)
– CASH AVAILABLE: Bank Account and Credit Card reconciliations to ensure every transaction is up to date

A good bookkeeper will:regularly update you with the current cash position, create room for cash contingencies, and help you plan for the cash requirements of further business development.


Want to do avoid Bookkeeper Problems?
Step-by-step of what to do:

a) Inform your bookkeeper of your new-found interest – and that you are looking for their assistance and advice to improve things; this includes ensuring you have full access to your own accounting system any time you like.
b) Ask your bookkeeper to list any problems or issues – areas of your accounts or systems that may need some more work or help, why they are currently an issue, and what fixes are in progress.
c) Start doing some checking for the Errors – Start doing some checking for the Errors Listed in 1-5, and also check the extent and severity of the issues are that have been listed by your Bookkeeper. It may also be worthwhile to ask your accountant if they have noticed any areas that could be improved.
d) Work with both your Bookkeeper and Accountant to resolve the problems once and for all – if there are issues fix them rather than ignoring them (any upfront cost of these changes will most likely be cheaper than continual rework by your Accountant at year-end for years to come).
e) Continue to check and monitor – always – regular and spot reviews are needed for as long as you remain in business.


Final Note:

The above pointers will probably not uncover or identify theft, nor any other deliberate or intentional fraud
This article only relates to unintentional errors. Lack of honour is a completely different kettle-of-fish that is unlikely to be highlighted by any of the above. However, if you Bookkeeper is uncooperative, secretive, or defensive when you begin to take an interest in your own accounts that may indicate a bigger problem altogether, and if you do have concerns I suggest you have their work checked by your accountant, or ask your accountant for advice on how to establish stronger segregation of duties, hierarchy of financial access, and other internal controls.


The Moral of this Story – when you engage with unqualified and inexperienced people, you end up paying extra for someone else to fix the mistakes that prevent your finances being accurate, current and complying.

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