Incomplete records: New approaches to an old problem

With self assessment season on the horizon and client information trickling in, John Stokdyk and Rachael Power look for new ways to tackle incomplete records jobs.

In a post-self assessment survey of 250 AccountingWEB members last February, 32% of respondents said they were interested in finding a better system for dealing with clients’ incomplete records.

Shoeboxes, black bin bags and other containers of dubious documentation still make regular appearances at accountancy firms. Especially during January, when advisers are least able to deal with the time-consuming drudgery it takes to work a jumble of statements, invoices and receipts into a workable set of accounts.

For most accountants (or their patient bookkeepers) this means entering the data into an application such as Sage, VT Transactions or, dare we mention it, Excel. Surely in this technological era, there must be a better way?

This article picks up the challenge laid down by our members earlier this year and examines various approaches and technologies to help firms deal with incomplete records.

Continued...

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Comments

Incomplete records    1 thanks

ver1tate | | Permalink

Working with small self employed individuals I receive most of their records in shoe boxes or plastic bags.

However, as I have other income, I am able to reduce my hourly rate accordingly, and my additional fees for entering receipts, bank statements, and reconciling them. As clients are self employed, probably the hardest thing is convincing them that they do not have a 'personal' bank account. But as this whole process can be done fairly quickly, with my wife's help, clients generally appreciate that the fees I charge would be far outweighed by the unproductive time they would spend on their business if they tried to do this themselves. 

Working from posted bank statements (in Excel, with appropriate macros to double check the figures) It is simple to establish any receipts missing, and any un-vouched receipts are entered as cash payments.

The client is then sent a list of missing receipts, which are generally forthcoming.

Before the accounts are filed, I get clients to sign a letter in which I state that the accounts are prepared from the information held, and that they agree with them.

Next, is what I have learned to do through experience, the client pays my fees before the accounts are filed ( as per my LOE)

 

shoe box accounting    1 thanks

philcollis | | Permalink

I think this article probably applies to VAT registered traders and/or limited companies, because there is a very easy way of preparing accounts from a shoe box full of receipts for businesses who are not compelled to keep proper BOOKS of accounts (everyone still needs to keep proper records!). I use a concertina folder for sorting, a Sharp printing calculator and an Excel spreadsheet to summarise (old fashioned slip system batch processing). I end up with an Excel summary of expense headings by month (using a simple numerical code), totalled for the year by simply entering batch totals of original receipts. Debtors, Creditors, Bank and Cash control accounts are calculated as normal for incomplete records. Another Excel sheet uses this trial balance to prepare the accounts. I can sort/ analyse/ total/ summarise at about about three times  the speed taken to enter each bill individually. This means my charges are about one third of preparing full books of prime entry through other software. I would appreciate comments as I may well have missed something very obvious to the more experienced of you. Thank you for reading.

Incomplete Records

State Emadu | | Permalink

 The clients with this problem are many in developing economies. The accountant should be aware of this problem and should be ready to tackle them as these clients too need our services. The issue to assess what the clients needs are and advice them on what they can do to improve on record keeping. With the new technologies we should be able to advice them on which one to use to upgrade their record keeping. If the accountants is of the opinion that the client is worth attending to then he should advice the client to seek alternative help. We should still remember that the advanced companies and the accounting profession started from where these guys are. Let us help them to develop and become the big clients we all envy to have.

DIY

kendflagg | | Permalink

I don't seem to see anywhere mention of the first obvious thing to do which is to educate your clients in better record keeping. There will be some who won't be amenable to go the whole hog but quite a few will be willing to undertake simple tasks to help keep things better recorded and organised. It is your duty to do this. Otherwise they are exposed to extortionate assessments from HMRC. You will then tell them they might as well pay up or you will be charging as much yourself to get HMRC off their back. It's a racket. You should offer the incentive of reduced fees for their doing as much as they can for themselves. Maybe charge a bit more for training but spread it out so it's not a disincentive. Programmes have existed for years now whereby transactions can be loaded down direct from the bank and automatically posted where they have identifiers as direct debits and card payments. You can offer this service from your office and ask for periodic schedules to fill in the gaps, eg cheque details. That way you can more quickly produce accounts and clients can more quickly spot trends and react. The way most accountants work they are useless as a management tool and just another tax. PS written before reading the above post.

care should be taken

philfromleeds | | Permalink

The problem with your system is that you are not taking care. Bills/ suppliers invoices and expenses can be paid by cash or bank. If you analyse the bank account firstly the payments you will find out that you have transactions and no paperwork to match . This means the trader has lost his bills. You can also get the posibility of a lot of ambiguity. A payment has been made to a supplier and you have a bill for part of that value. Is that bill a standalone cash paid bill or part of the value of bank paid bills. You can get problems on the Bank receipts side. Especially amongst builders. They raise an invoice or invoices to a customer and the receipt value does not match. I ask my builder clients to always number their sales invoices. They dont like doing that for some strange reason. Then you get some builder clients who develop number systems based on say individual months so that you cant check them properly. I think HMRC should supply receipt books to all builders to use. Every time they accept money from a residential customer or a commercial customer they should be expected to give a HMRC provided receipt.

It takes 2 to tangle. A home owner who does not ask for his official receipt should be done for tax evasion as well as the builder.

TMK Accounts's picture

Shoe-box accounting    2 thanks

TMK Accounts | | Permalink

I have clients who do not even use e-mail or on-line banking and don't have a separate business bank account. Like Ver1tate posted, I also use Excel to compile accounts for small non-vat registered sole traders. I would also add that most of my clients are too busy running their own business to be even vaguely interested in being trained in record keeping! They know they pay for my time to create their records from scratch and are happy to do so. I also make sure they get their paperwork to me well before January.

Misleading attribution

mikewhit | | Permalink

"While Mike Whit was happy to accept the shoebox and add an extra five hours’ time to the bill"

I think you will find I said (with my current comment after each case):

a) train them up in what you require - first priority !

b) add 5 hours on - if client untrainable

c) charge them by weight of unsorted, eg 50p per gram - if client might see reason when put this way, and do a bit of sorting !

Stationery solution

mikewhit | | Permalink

What might help is if Staples or one of the major stationery suppliers sold an Expenses / Receipts folder with say 12 or 24 or some multiple N of 12, A4 pocket sections.

This would then be set up as Jan, Feb, March ... (or Apr May June .. depending on company year) with  N sections per month for say, Invoices, Expenses, or whatever was most appropriate. (Travel, Accommodation, Misc ...)

Annoyingly WH Smith only sell files like these as A-Z or with 20 (not 24!) sections - it has not occurred to them to make a financial year fit inside.

The new client would then be handed one of these marked up with year and months and told to decant such items into the folder.

An alternative with higher resolution might be by week number (to tally with the desk diary) for which  as long as the sections were suitably marked, a couple of the 26-section items might do.

Paul Scholes's picture

Thank goodness record checks are not regular

Paul Scholes | | Permalink

Unless you only have perhaps 20 - 30 transactions a year I didn't think it was acceptable to maintain business records annually?

As mentioned above, surely all you do is show them how to keep a simple record and, if they don't see why they should, point them at (or print out) HMRC's view If they are still not convinced then I'd ask them to carry on walking.

A DUTY OF CARE IS IMPERATIVE!    1 thanks

askfatajo | | Permalink

Surely, this is a nightmare for most accounting practices, this article is really helpful in that it attracts lots of interest. This shows that this is a common problem for most accountants and book-keepers.

In my practice, we are always willing to help these kind of clients with a simple book-keeping templates in excel to capture their expenses, especially those expenses paid by other methods other than bank.  Ofcourse we ask them that receipts/invoices must be filed; also help to set up such files.

However, as most of these clients are budget clients, paying rock bottom fees, helping them further in this regard is only worthwhile if extra fees can be added.  Unfortunately, not many of them are willing to pay for this.

I feel that we owe a duty of care as accountants and book-keepers to ensure that the work we do , are completed at the highest level of fairness to both the tax man and the client.  Therefore, low fees should never be a threat to this fundamental code of conduct.  Either accept low fees for proper work, or part with the client if he disagrees  to paying a bit more for a better work and you are not prepared to do such work at such a low fee.

Anybody remember the "logus"

Vaughan Blake1 | | Permalink

When I was nobbutt a lad (late 70s) my firm invested in a new marvel called "The Logus".  This was simply a desk calculator with a printer.  The clever bit (hey digital watches were a novelty back then!) was that you could numerically code each entry.  The machine then simply gave you both an overall total and a total for each code.  You could then blast through a pile of receipts giving you Instant analysis and it would always cross cast!

Like brown pinstripe three piece suits, gone, but not forgotten. 

Typing up statements is a waste of time!

ocrex_software | | Permalink

If you are dealing with shoebox clients and receiving carrier bags of bank and credit card statements, you should absolutely take a look at AutoRec software from OCRex as mentioned in the article. With AutoRec, you can simply scan all of the statements using your existing office scanner and AutoRec will extract all of the information ACCURATELY to a spreadsheet before allowing you to complete the bank rec, analysis and export that data to accounts production within minutes. 

If you have tried to use some "off-the-shelf" OCR product before and been dissappointed, it's time you looked at AutoRec. The reason why AutoRec is so much better is because it is programmed specifically for each and every type of bank statement - it doesn't try to extract data in a generic fashion. When AutoRec scans an image, the first thing it does is to uniquely identify what type of bank statement it is. By doing this, AutoRec already knows how many columns to expect, which ones will be numeric (debit/credit), what date format to expect, whether or not to expect multi-line descriptions for transactions, how to identify presented cheques automatically, etc. It then has over 100 cleansing algorithms which do things like remove handwritten tick marks, populate all transactions with their appropriate dates where the statement typically only prints a date adjacent the first transaction of a given day. 

AutoRec also allows you to store all of the charts of accounts that you would normally use for whatever bookkeeping or accounts production software so that you can use also AutoRec to analyse all the transactions in a fraction of the time it would take manually before exporting any number of specific csv file formats so that the reconciled, analysed data can be readily imported into your chosen accounting software. 

OCRex developed AutoRec specifically for this job. It has recently been added as a preferred supplier for the AIMS network and is now undergoing the accreditation process with the ICAEW. Within just 15 months of it's release, it has already been adopted by over 430 accountancy practices. 

TMK Accounts    3 thanks

ver1tate | | Permalink

Absolutely correct. If clients can make £50 an hour at their own business, they are not interested in learning about sorting out paperwork and then doing their own bookkeeping. the time it would take them to learn would mean loss of earnings, as would doing their own bookkeeping, even with a simple template It would probably take them about 4 or 5 times as long as a professional who is both a qualified bookkeeper and accountant. Clients are astute enough to realise that it is best to let them carry on with making money from their own business and let a professional handle the paperwork.

How many accountants would waste valuable fee earning time painting, decorating or building?

Paul Scholes's picture

Record keeping is part of running the business

Paul Scholes | | Permalink

As I said above, unless there are only a tiny number of transactions in a year, I don't think HMRC would find it acceptable for the records to be kept in a shoe box and only written up once a year.

With regard to wasting their time and money making activities keeping some records, when we used to deal with such jobs (20 years ago) we'd end up with 40-50 queries over unknown income & expenditure which would mean taking up their money-making time and, more often than not, having to use estimates and guesswork.

HMRC will not pick post year end, when you are writing up the books, to carry out a records check, it might be 9 months into the year, when you have nothing to show them.  So as long as you make this clear to the client and insist they declare any significant guesses or estimates in the SA return, you should be OK.

Finally I don't think it's right that someone in business should not have at least some basic knowledge of how accounting works and should not believe that it's somebody else's responsibility to make sure the records are kept properly.

Paul Scholes    2 thanks

ver1tate | | Permalink

In 15 years of working with small clients and shoe boxes, I have never had a record check on a current year in the middle of it.In any case, unless fraud is suspected, they will normally make an appointment a few weeks hence, and inform the client. The client then informs the accountant who will adjust his fees accordingly for a rush job

With regard to wasting their time and money making activities keeping some records, when we used to deal with such jobs (20 years ago) we'd end up with 40-50 queries over unknown income & expenditure which would mean taking up their money-making time and, more often than not, having to use estimates and guesswork.. Surely it is better to do this than attempt to educate a tradesman who will make a mess of ALL the entries. They are willing to spend a comparatively short time answering queries, and be charged for this. 

How many hours have you stared under the bonnet of a car bewildered by all the leads, attempted to fix it, then called a mechanic? Or tried to fix a leak, and finished up flooding the kitchen? The fee losing hours wasted in these problems could be saved, and repairs done in minutes by tradesmen.Provided clients are keeping proper sales records, and mileage where appropriate,a box full of expenses is perfectly acceptable.

Clients are aware of the complexities of accounting, and prefer to leave this to trained experts.

Paul Scholes's picture

ver1tate

Paul Scholes | | Permalink

With regards to record checks, yes, as I said in my first post, they are not regular so the risk is low however, in a recent one on one of my self employed clients, they carried out a phone interview and one of the first questions was, how regularly to you write up your books.  The answer to this and other key questions, was sufficient to persuade HMRC they did not need to carry out a visit and, other than a 15 minute chat with the client a day before the call, I didn't get involved.

As far as painting, decorating, carrying out building work, fixing my car, if it ever breaks down, or fixing the leak in my kitchen, it might be different in your business but none of these are part of mine.

Anyway, at the end of the day, I have a lot more interesting things to do than opening shoe boxes, and clients would far prefer to spend an hour a week sorting it out than pay me £100.

Still, it's good to know that, even in the accountancy business, with all its best practice and  regulation, there is still room for variety.

billgilcom's picture

Variety is Incomplete Records -    2 thanks

billgilcom | | Permalink

My experience of incomplete records is that it is what is NOT there that is usually the key to accurate figures and taking up one of the previous correspondents angle I would suggest that automation may well lead to less accurate results if it is not supplemented and augmented by critical physical examination of the facts and figures produced by the scanning etc figures of bank accounts statements . Take for example the local builder (apologies to any builders but I needed an example)  with business receipts not going through the business bank accounts but either ending up as beer money (builders do drink occasionally)  or being fed into personal bank accounts of themselves or their kith and kin. The inevitable queries list was and is the main key to fair and reasonable accounts being produced with for example work costs being related to jobs done and hence giving rise to the "odd" uninvoiced sale. I have tried a number of scanning and OCR products for bank statement etc analyses but alas up to now have failed to find one that can apply the human "investigative" angle to putting incomplete records together. Hopefully we will get to a stage where someone is so confident that their software will do everything that everyone could ever want as regards analysis and presentation that they will have no problem in providing free trials and/or full money back refunds if they do not get to the same result as is achieved by manual "investigative" approaches and unfortunately long and laborious checking and inspecting of the scanned/copied data.  The latter does tend to lead to the conclusion that to get a thorough and reasonable result you still need to provide hours of manual intervention that tends to severely diminish the perceived time saving with OCR. Unfortunately few programmers and software developers ever fully understand the intricacies of Incomplete records so that we only get reported benefits comparing manual inputting versus scanning which is not the whole story.  

Paul Scholes's picture

Things are getting better

Paul Scholes | | Permalink

billgilcom - a number of my small clients are now on Cloud accounting where the need to scan/copy bank statements no longer exists because the systems suck in feeds direct from their banks or the client exports bank transactions from internet banking to be imported into the software.  For the others they can download transactions into CSV file to be opened in Excel.

With regard to scanning of documents, I've used software to scan & convert to Excel or Word for years without problem and the new breed of software will now also extract financial data from PDFs and these are already in operation, linked to Cloud accounting. 

For the stuff where humans still have to get involved (the essence of incomplete records) what's wrong with asking the client to write down stuff that happens, eg "keep a note of any cash work".  Yes, there's no guarantee they will get it 100% right but, for those that don't want to, they can find someone else to put at risk, it's not our problem.

Incomplete records

karen.morriscook | | Permalink

In my experience younger clients wouldn't dream of sending in a shoebox as they are keen to know where they stand on a week by week basis.  But I have a number of longstanding older clients who really have not got a clue where to start.  I always advise improvements in book keeping but there is no point in some cases and sometimes you just need to know the limit of the improvements the client is able to make.

I advised a client to put a large nail through a piece of wood and make sure that every receipt whether paid cash or bank went on it.  Now I have records that are much easier to look at because they are in date order which is a vast improvement.  Next year I am going to ask if there is any way that he could simply write cash on the ones that he has paid by cash.

You can make a client just feel completely inadequate by trying to push him into a book keeping system that he doesn't understand and thereby ruin the relationship that you have with that client.

Incomplete records    2 thanks

1stcallaccounts | | Permalink

Incomplete records are here to stay.  

If you think you can educate your clients to be better record keepers, you are dreaming.  

The bottom line is...well really the bottom line.  If you can't afford to produce the accounts and tax returns within the budget set for this client, then you can't do it, its that simple.  Don't do sub standard work just to make a profit and most certainly don't make a loss.  

If the client can't agree to higher fees or won't comply by keeping better records then part ways.  We all want to keep our clients but if its damaging your bottom line..what is the point?

Simple steps to missing records, I think someone else mentioned the same;  

(even the best record keepers have missing paperwork, its just the poor ones which take a bit longer, but the method is the same)

  1. start with the bank
  2. match up paperwork with the bank
  3. the rest goes to cash
  4. produce a list of missing paperwork
  5. give the list to your client
  6. what expenses can't be answered go to drawings
  7. what income can't be answered stays in taxable income 
futureb00ks's picture

Xero provides an accounts department

futureb00ks | | Permalink

For years, an employee of our client has been manually entering billing data for each company and at times even, mistakingly repeats invoices. He ended up with incomplete records and a dip in confidence when tasked to bookkeep.

 

Xero cuts down admin work by fifty per cent. Tasks such as entering and maintaining detailed transactions is made faster and easier with Xero. It automates billing as you can choose multiple invoices and use the split-payment function from Xero to automatically record lump sum payments made.

 

This cloud-based accounting software increases efficiency of bookeepers, providing the company itself with a strong accounts department. Read more here: http://bit.ly/14Jc88w

Paul Scholes's picture

futureb00ks

Paul Scholes | | Permalink

With the exception of thier cashbook offering, there is no way that Xero is suitable for the sort of clients talked about above, it is too complex for them and most, if not all, would never employ a bookkeeper.

Out of interest, how about QuickBooks online, that you also use, how does that compare with Xero?

Paul Scholes    1 thanks

ver1tate | | Permalink

As far as painting, decorating, carrying out building work, fixing my car, if it ever breaks down, or fixing the leak in my kitchen, it might be different in your business but none of these are part of mine.

So, you agree that it is best to leave such tasks to qualified people

 

Anyway, at the end of the day, I have a lot more interesting things to do than opening shoe boxes, and clients would far prefer to spend an hour a week sorting it out than pay me £100.

A client spends an hour a week sorting out paperwork, a total of 52 hours a year. Losing income of roughly £2600.00. This is rather than pay you £100.00. either your clients need a lesson in economics, or you should increase your fees.

But I feel that Karen's remark is tops.

You can make a client just feel completely inadequate by trying to push him into a book keeping system that he doesn't understand and thereby ruin the relationship that you have with that client.

Only my personal view.

Paul Scholes's picture

ver1tate

Paul Scholes | | Permalink

As to the use of experts to do stuff, of course but, you miss the point I made above, my clients don't need an expert to keep their books, just like I don't call in a plumber to change a washer or go to a garage to put new windscreen wipers on.

You also missed the point about costs, firstly, if, like a lot of small businesses, they spend an hour on their books, it will be at night or weekend so I'm not sure about £260 let alone £2,600 but anyway, if they asked me to do it I'd charge them 52 x £100.  As I say, I've got better things to do with my time.

Where did I say I push my clients into a bookkeeping system they can't cope with?  I tailor the system to their needs and abilities, that's my job and none have complained, they see it as their responsibility to keep the books of their business.

Again, variety is everything and I suppose I'm lucky, my clients can write.

Enough said by me now, I have a leak in my loft to fix (honest and an emergency plumber will cost a fortune)

EDIT - fixed it !!! amazing what advice you can get on the web, bit like those hundreds of thousands of businesses that do their accounts and tax returns without anything to do with us

clients    1 thanks

ver1tate | | Permalink

Many small business owners work more than a 40 hour week, especially in the recession (or at least mine do) having to keep their prices low to compete with employees (mainly council, at least in my part of the country) who can work for very low hourly rates. They are in many cases glad to spend an hour or two with their families rather than spend an hour on their books, at night or weekend.

Hope your emergency plumber is not too dear. And don't forget to ask him for his UTR, or you may get a 'moonlighter'

 

futureb00ks's picture

Automate financial tasks with cloud-based app Xero

futureb00ks | | Permalink

 

For years, an employee of our client has been manually entering billing data for each account. Sometimes, he mistakingly repeats invoices, ending up with incomplete records and a dip in confidence when tasked to bookkeep.

 

Xero has changed his life. It cuts down admin work by fifty per cent. Tasks such as entering and maintaining detailed transactions is made faster and easier with Xero. It automates billing as you can choose multiple invoices and use the split-payment function from Xero to automatically record lump sum payments made.

 

This cloud-based accounting software increases efficiency of bookeepers, providing the company itself with a strong accounts department. Read more here: http://bit.ly/14Jc88w