Keeping Your Accounting Records Up-to-Date

Stan Graham, CPA, Juris Senior Consultant, LexisNexis:

 

For years I have been preaching the importance of the timely completion of financial and reporting tasks. Yet Firm Administrators, Firm Accountants, and Back Office Staff frequently complain to me that they just don’t have enough time and are always behind on entering transactions and doing monthly reconciliations. And I get it. We’re all extremely busy, being asked to do more and more in an increasingly complex business environment.

And reconciliations and financial analysis always seem like the easiest things to put off, saying “I’ll get to it later.” There are so many factors that come into play as to why we get behind, that it’s hard to single out one or two that apply to all law firms. But the importance of keeping up-to-date on reconciliations and financial analysis cannot be understated.

There are four important reasons that financial records should be kept up-to-date.

  1. Accurate Information for Decision-Making
  2. Minimize the risk of Fraud
  3. Meeting critical deadlines
  4. Prompt and accurate Billing

 

Accurate Information for Decision-Making

As business owners, an effective law firm needs to continually make timely decisions that affect the success of the firm. In today’s fast-paced world, decisions must be made quickly with the most accurate and complete information available. Delayed decisions due to inaccurate or incomplete information can result in delayed or incorrect decisions that can have substantial negative financial impact to the firm.

This could include such things as:

  • The hiring or firing of attorneys, paralegals, or staff.
  • Not recognizing when certain expenses have grown out of control.
  • Determining appropriate bonus structures and cash available to pay those bonuses.
  • Calculating quarterly estimated payments for income tax for partners.

 

Minimize the Risk of Fraud

In the last few years, I have helped a number of law firms investigate embezzlement or potential embezzlement at their firms. In many cases, the perpetrator or suspect was able to get away with it because the accounting records were not up-to-date and no one in firm management was monitoring the production or accuracy of the financial records.

In one embezzlement case that I helped investigate (which resulted in a conviction), one of the first things discovered was that the bank accounts had not been reconciled in over five years!

Also, attorneys are notorious for not reviewing their credit card bills and reporting to the back office staff what the charges are for and who (if applicable) needs to get billed back for those charges.

I can’t tell you how many times I’ve worked with back office staff at a law firm that complains about the attorneys not turning in receipts in a timely manner, or not responding to requests from the accounting staff to identify and document their credit card transactions. The United States leads the world in credit card fraud, with experts saying that by 2020, total card losses in the U.S. from credit card fraud could reach as high as $12 billion. This is a lucrative business for thieves and fraudsters, and quickly identifying and reporting fraudulent transactions is critical in minimizing losses from credit card fraud. But many attorneys put off this task over and over because they don’t like doing it.

Paying attention to the books and accounting records is another task that attorneys don’t like doing. They often feel that those tasks are beneath them . . . that they are not “bean counters”. This derogatory attitude toward accountants and bookkeepers is the sort of thing that will get the firm into trouble. Someone in firm management needs to be monitoring the accounting and back office staff to make sure that the work is done in a timely manner and sufficient internal controls are in place to minimize the risk of theft or embezzlement.

Also, If the firm carries insurance against embezzlement by employees or accounting staff, lack of oversight by firm management will be viewed by your insurance carrier as contributory negligence. If your insurance policy has a contributory negligence clause in it, and you are embezzled from, you won’t collect a penny from your insurance company. Besides, if proper oversight and controls are in place, the likelihood of an embezzlement taking place is greatly reduced.

 

Meeting Critical Deadlines

At a law firm, there are always critical deadlines that attorneys have to be aware of . . . filing deadlines, responses to the court, etc. But there are also critical deadlines that the back office staff needs to meet. Those would include:

  • Meeting IRS deadlines for tax filings such as 1099s, 941s (quarterly payroll tax report), and the firm’s annual tax return.
  • Providing financial statements to banks that the firm has loans or a line of credit from.
  • Providing tax withholding information to various State and Local Taxing Authorities.
  • Making quarterly estimated tax payments for partners in a partnership.

Missing these deadlines can have direct negative financial impact to the firm. Many of these deadlines can have fines or penalties if they are missed. Or, late or inaccurate estimates of taxes for partners can cause them to either overpay their taxes or underpay. If they underpay by too much, the IRS levies a penalty against the partner.

 

Prompt and Accurate Billing

One of the most important tasks of the back office staff is prompt and accurate billing. If we don’t bill, we can’t collect. And getting cash in the door is critical to keeping the business running.

At the crux of the problem, is that many attorneys don’t think of themselves as business owners. But they are. If the accounting records are not accurate, it’s not the bookkeeper that the IRS goes after. It’s the firm and its management. Understanding the dual nature of being both an attorney and a business owner is critical to the long-term success of the firm. In addition, it is important that the firm’s attorneys understand their role in the timeliness of financial records.

As I mentioned earlier, attorneys are notorious for not turning in receipts in a timely manner, or not responding to requests from the accounting staff to identify and document their credit card transactions. This delays billing while the Billing Team waits for information from the attorneys, or spends time chasing down attorneys when that time could be better spent getting bills out the door.

 

Solutions

It takes a team effort to resolve the issues that I have outlined. Office staff need to be more efficient in their daily activities to free up the time to get their work done. Attorneys at all levels need to understand the impact of their behavior on the firm. And firm management needs to monitor financial reporting and remove impediments to effective workflows that will make staff more efficient. In addition, the Juris Professional Services Team can assist in identifying areas of inefficiency and provide solutions to improve efficiency.

While transitioning to more efficient workflows will sometimes require some short-term extra work, it will generally show clear and obvious benefits within a couple of months. Some of the things that you can do to achieve these efficiencies include:

  • Identify reports being created in Microsoft Excel with information from Juris and have the Juris Professional Services Team create a Custom Report that eliminates production time and improves report accuracy.
  • Use the Monthly Closing Checklist created by the Juris Professional Services Team to prioritize activities and tasks and track their successful completion.
  • Firm Management can provide guidance to the legal team on the importance of prompt review and processing of credit card transactions and use their roles to implement positive behavioral changes.
  • Utilize Report Distributions in Juris Suite to automate the production and distribution of Reports, freeing up back office staff for more important tasks.

If the firm will work toward being more efficient and implement many of the suggestions that have been outlined, it can only result in positive outcomes for the firm. And in today’s busy environment, it’s not just an option, but a necessity.