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Art of Accounting: Importance of small errors

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I believe that small errors made by inexperienced staff can be excellent learning opportunities. A problem today is that fixing small errors seems to have gone by the wayside. 

Today's attitude is that materiality is a cornerstone of what we do. Cost benefit forbids any attempt to correct small errors, and usually small errors do not matter in the big picture. "Our" role is to determine that financial statements are presented fairly, not exactly. Our role as advisors trains and guides us to look at the big picture, strategic values and trends. As such small differences are usually accepted and we move forward. However, I believe that having an inexperienced staff person correct a small error has great value in their training. 

I have conversations with hundreds of accountants a year and one of their top issues is staff training and reducing the errors they make. We also live in an era where everything is rushed with instant communication and response time. People, especially young staff, do not want to do things the "old school" way so there is a focus on getting things done quickly, reasonably well and in the range of expectations, and out to the client. Small errors are tolerated and overlooked. There are many types of "small" errors and some of these include speling [sic] and not completing checklists. My focus has always been on teaching the right procedures, having all processes and checklists followed, and making sure the right work was done the right way and in the right time budgeted. Procedures were changed, altered or updated based upon continuous oversight and the collective experiences using the systems. We did not have a static "locked-in-time" process. One reason for uniform processes is that it was easy to teach and review. Even very low-level staff were able to train or supervise an entry level person.

Following are some examples of how fixing small errors became high impact lessons.

When I was a junior accountant, I made a $19 error in calculating the monthly insurance expense for a client that had monthly sales of $450,000. My boss called it to my attention and told me to fix it. It took me more than a half hour. This was in the days before computers, and I had to change all the entries by erasing what I did and redoing them while also making sure I did not make an error fixing my error. I was not mad at my boss but annoyed at myself for making what was a careless error that I should have double-checked. I worked carefully, but after that I was even more careful. That error-changing experience added to my arsenal of training opportunities. Today that $19 would be passed on without a thought.

Occasionally you have someone that starts working for you and you know they are going to be a star. Well, I had someone that I felt this about. Very early on she was working on a very long and involved accounts receivable schedule (I forget the exact details of how it was created) and she was out 11 cents. Eleven cents! I told her to find it. It took her two days, but she found it. The expression on her face when he presented me with a balanced schedule was worth much more than the "cost" of the two days she spent. She learned what I wanted her to learn — that schedules are supposed to balance. This also includes bank reconciliations and similar worksheets. Since that time, I, and my partners, were able to trust her work and she grew immensely and became a superb supervisor and manager. She was also an exceptional outside-the-box thinker and instituted many changes that streamlined some of our processes. She worked for us for 10 years after being hired out of school, so the benefit to cost ratio of the 11 cents difference was quite high. Today the 11 cents would be passed on without a thought.

One time a staff member handed in a completed tax return with the only error being a transposition in the zip code in the address. I called him and had him come back to the office that night to "fix the error" he made. It was very inconvenient for him to come to our Manhattan office after he spent the day with a client on Long Island, with him living in Brooklyn. He acted like he hated my guts … and might have when he saw that the only fix was that zip code. My rule was, and still is, that all errors must be fixed by the person making the error. No exceptions! I still teach this today in my books and webinars on reviewing tax returns (with few attendees actually following this, as far as I can tell). I told this story about 10 years ago at a pre-tax season conference and that staff person happened to be sitting right up front and he volunteered that it was him. He admitted to really hating me at that time, but he said he never made a mistake again on an address or client's name and other details like that, and frequently remembers that incident. Today 99 out of 100 reviewers would fix that error and likely would never mention it to the preparer. Short-term expediency and a long-term loss of proper work discipline with no hope of excellence. 

I have found staff training deficient in many firms. I have also identified many types of errors and by far the greatest number of errors are from carelessness and rushing, not from a lack of competence. Yet, when there is training it is on technical areas, not what I call soft skills. Fixing errors is soft skills training, and when done, it works wonders.

All training is done for the long term. Expediency is a short-term fix with no permanent benefits. Make fixing errors part of your OJT ("on the job training"). OJT works and is cost effective. Time out of a day does not have to be set aside for the training and it provides permanent benefits. I speak from experience from a very successful career of growing very successful accountants. I may not have won any medals for tact, but the successes of former staff are my awards. 

For me, the small errors yielded great benefits.

Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People list. He is the author of 24 books, including "How to Review Tax Returns," co-written with Andrew D. Mendlowitz, and "Managing Your Tax Season, Third Edition." He also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. He is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where he shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. He welcomes practice management questions and can be reached at (732) 743-4582 or emendlowitz@withum.com.

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