What's the Right Way to Handle a Slip-Up from the Competition?
Bookkeepers frequently encounter messy books. At times, you will think, “This person obviously didn’t know what they were doing.” Before you share this observation with your client (or anyone else), here are a few things to consider.
Bookkeepers frequently encounter messy books. Often, these messes are caused by well-meaning business owners or members of their families who have attempted to do the bookkeeping themselves.
From time to time, though, you will encounter a set of books done by a professional bookkeeper who charged for the service, and you will think, “This person obviously didn’t know what they were doing.”
Before you share this observation with your client (or anyone else), here are a few things to consider.
Remember: You Don’t Know the Full Story
The books haven’t been reconciled for months, there are tons of transactions posted to suspense accounts, and depreciation hasn’t been recorded for the past two years.
I’ve encountered numerous sets of books fitting this description. My initial reaction used to be to blame the former bookkeeper. They were obviously falling down on their job.
In almost every instance, within a few months of working with the client, it became clear that the former bookkeeper was not entirely to blame. Usually – though not always – the business owners who come to me with books that are not properly reconciled are slow to respond to requests for information or inquiries about transactions on their books, making it impossible to keep their books updated and in tip-top shape.
Unless you speak with the former bookkeeper – which I recommend doing if at all possible – you won’t know if the client is slow to respond until you have worked with them for several months. Withhold judgment on the former bookkeeper’s incomplete work. When communicating with the client about the work needed to bring their books up to date, keep your communication neutral. State what needs to be done, but refrain from placing blame on the former bookkeeper.
Finally, consider adding language in your engagement letter that states what is expected of the client in terms of communication and providing information and the consequences of the client not abiding by these rules. Doing this – and holding your client to these expectations – can help protect your reputation.
Bookkeeping is a Mix of Art and Science
The books are up to date, but the transactions are not categorized the way you would expect. There are non-deductible expenses on the P&L, and the chart of accounts is too detailed (or not detailed enough.) The former bookkeeper must not have known what they were doing, right?
Bookkeeping isn’t an exact science, and bookkeepers keep books in different ways for different purposes. Personally, I prefer to keep books that can be used for management purposes, which means I don’t always follow the rules that keep books in tax-ready condition. At tax time, I provide clarifying information to the clients’ tax preparers so they can easily prepare the tax return, but a bookkeeper looking at books I have kept throughout the year wouldn’t know that and could assume there are errors.
Also, keep in mind that – from a tax perspective – it makes very little difference which accounts most expenses are posted to (meals and entertainment expenses being major exceptions). Classifying Dues and Subscriptions as Office Expenses won’t impact the client’s taxable income. How most expenses are classified is a matter of the bookkeeper’s preference.
Finally, the client might have asked the former bookkeeper to report information in a certain way that might not align with bookkeeping “norms.” You don’t want to go to your new client and tell them that their last bookkeeper didn’t know what they were doing if they were, in fact, complying with the client’s requests.
My mantra is, “It’s not the way I would have done it, but that doesn’t necessarily mean it is wrong.” Talk with the client about how they use their financial statements, and explain any changes you recommend. Again, don’t suggest the former bookkeeper didn’t know what they were doing, just that you are suggesting changes that will help the business owner optimize their books.
If the Former Bookkeeper Truly Was Incompetent
Bookkeeping is not regulated in the United States, which means anyone can put themselves out there as a bookkeeper and charge for their services. You will occasionally come across books that were obviously done by someone with no understanding of bookkeeping beyond using accounting software as a glorified check register (and sometimes, they might not even have that level of comprehension).
You should say something to make sure this person doesn’t create a mess for other business owners, right?
Yes, but probably not in the way you think.
Think back to the last time you discovered you had been doing something incorrectly. How did you feel?
Most likely, you felt embarrassed, and then you turned that embarrassment into resolve to learn to do better from that point forward. And part of that learning to do better meant seeking out education and possibly a mentor.
Your reaction wasn’t unique to you. No bookkeeper sets out to do a bad job or intentionally create messes in their clients’ books. We all want to do better and serve our clients in the best way possible, and this is an opportunity for you to help a fellow bookkeeper…and possibly create a referral partner.
Reach out to the former bookkeeper if possible (and if you want to) and open the doors of communication. If you discover this person is new to the industry, offer to mentor them (again, if you want to do so).
Resist the urge to decry the other bookkeeper as a fraud. This will not help them, and it will make others suspicious of you and your motivations as well.
If the Former Bookkeeper Was Stealing
Unfortunately, there are some dishonest bookkeepers out there, and if you are in the profession long enough you might uncover fraudulent activity in a client’s books.
If you uncover fraudulent activity by another bookkeeper, you are obligated to say something, but you must proceed with extreme caution.
First, double-check your findings. Is there any possible explanation other than fraud? Examine all the angles – including incompetence – before speaking with the client.
Next, speak privately with the client about your suspicions. Present any evidence you have uncovered in as neutral a manner as possible. The client might respond in any number of ways – outrage, hurt, disbelief – and adding your emotions to theirs won’t help them make a wise decision.
Finally, understand that how to proceed is the client’s decision – not yours. Many business owners choose not to prosecute former bookkeepers for fraudulent activity. This can be due to embarrassment, unwillingness to invest the time necessary to press charges, or even compassion for the bookkeeper. However the business owner decides to proceed, you have fulfilled your responsibility by letting the client know about your suspicions. Don’t open yourself up to legal action by publicly denouncing the former bookkeeper.
Don’t Badmouth the Competition
When you come across “bad” bookkeeping done by another accounting professional, it’s tempting to reveal it to the client, or maybe even publicly. However, it’s important to consider who you would be helping with this revelation.
Unless there has been criminal activity, you are helping no one by bad-mouthing another bookkeeper. It’s usually best to not point out the shortcomings – whether perceived or real – of the former bookkeeper to the client. And it’s never appropriate to publicly denounce another bookkeeper. In fact, it can be downright risky and land you in the middle of legal action if the person decides to accuse you of defamation.
As with most things, the Golden Rule applies to your competition. If you wouldn’t want another bookkeeper to look at your work and tell someone else you didn’t know what you were doing, then you should extend the same courtesy to others.
Billie Anne Grigg has been a bookkeeper since before the turn of the century (this one, despite what her children think). She is a QuickBooks Online ProAdvisor, LivePlan Expert Advisor, and a Mastery Level Certified Profit First Professionals. She is also a guide (coach) for the Profit First Professionals organization. Billie Anne started...