Client Ledger Cleanup Hacks

Welcome to Accountants Law Pod, where accounting professionals and law firms converge. Hosted by Linda Artesani, Sarah Prevost, and Stephen Libhart.

Welcome back. How are you both?

Good.

Yeah.

The year is flying by.

Let's just say.

Oh my gosh.

Yeah.

I know today. Today is one deadline day. Uh, next one's coming up. We're in the middle of March right now. So, uh, which is a good time to kind of go through some, some cleanup stuff, right? Like, our topic today is client ledger cleanup hacks, and it sounds kind of funny to say it as a title like that, but we've got some ideas and tips and tricks to, to push out there.

Um, I actually listened to a podcast this morning that, you know, the one I've been following that I shared with you, that's about like cleaning up Your life. And yeah, yeah, my closet this weekend— on yesterday, I went through Sunday and I went through the entire closet. And my husband came in, he goes, what is going on? I threw all the shoes on the, on the floor on this bench. And he's like, I'm getting out of here. And then he came back in and I had all the clothes on the bed. And I actually tried on clothes. I made a pile of like skinny jeans that will someday come back in style but are not. And I put them aside because I don't want to throw them away. I'm going to just kind of stick them up in the closet.

Yeah.

And then clothes that didn't fit and clothes that are old and shoes that They were so old because in Florida the humidity kind of kills them off. If they're not leather, they just kind of disintegrate.

Yeah, yeah.

So I had 2 giant bags and I was listening to that because that lady gave some good tips because she said one of the things is try to put your piles with like, with like items. So don't try to overthink every single thing and try to figure out where things go. Put like things with like. And then that made me start to think about this topic because, yes, not so much this, but she also said She was doing a puzzle, and it occurred to her like you had 1,000 things in your closet, 1,000 pieces.

Yeah, right.

And you want to look at what do you want this file to look like at the end? The puzzle's put together. Now, with a puzzle, you have a little picture on the front cover, whereas in our world you have to visualize what the file will look like. And I'm sure we'll get into some of the steps of that.

Yeah.

But I think that's the best way to even sell it to the client. Is sell the, the COVID on the box of the picture to the client and then get into the minutia of cleaning it up because it can be big. Yeah, really big.

Well, you know, it's, it's because this is really tailored to, um, accounting people, this particular, um, episode. But in general, what you just said, which, I mean, you both tell me if this sounds to you the picture, we get the story. You're telling us the puzzle pieces. We have to assimilate in dialogue what this could look like without looking under the hood. So this is why it's important for any sort of file review to occur so that we can understand the tangible pieces to be better at saying, okay, look, this is what we foresee as a process in order for this to be cleaned up or workflows to be shifted or changed. To your point, like, you've got a million things you're looking at, but you have to—

Yeah.

The picture is hard to follow. So if we look at the tangible pieces and then describe it as a holistic picture, but inside of it, and we've both, all 3 of us have discussed this in prior episodes, it's how the workflow is, it's how the pieces go together and how they fit, like you're saying, Linda, and the light pieces have to, it's not an easy thing to see when you're in the middle of it as a business owner.

No.

Just as a pure owner. So I don't know, what do we want to start with? What would be some of the pieces, I guess?

Well, sometimes it's messy. So you've got this giant mess and you've heard, like you said, you've heard the story and the conversation you had with them. And then you're sitting there and you're like, okay, I think sometimes the first thing I drive to is the chart of accounts and cleaning that up, fixing that because it's always wrong, messy. Lots of old stuff on it before I even dive into the trust, which is always the second place that we kind of go, because I just need it to be organized and sensible. Sometimes it's— I mean, Steve, you've probably seen it too, right? There's a lot of junk on it that's not necessary or old, you know.

I think the very first thing is to unpack how it got so messy and then ask them that and then listen and make your notes. You know, how did it— how did it get this way?

A lot of them mess up and they say it's them. A lot of them sit there and go, it's my fault. It's like, I try to do it myself.

And to your point, Linda, the second thing is, is ask them directly. If you walk— if a bar auditor walked into their firm tomorrow, what— and, and found out that things were a mess, how would they handle that? And that's right away, that opens the door, that, that lets them know that you Are speaking the truth. You are, you're experienced with it. You're there to help them. And you're prying and trying to get the feedback from them of how it happened. And, you know, where are you going to go next? And then you work on those root causes. And, and to your point, the trust account obviously is, we're going to jump in that right away because that's the most, um, exposure.

Well, that can open a conversation too. Don't forget when we did the trust, um, this weekend when we did our little game. That came up in the conversation at the Law Lab because they're like, well, what do you do? I think I started the conversation like, what do you do if you go to a client, you've examined the trust, you pull up the balance sheet, all dates, filter it down by year, and you find out that this goes all the way back to 2001? How do you have that conversation with the attorney? And we went, we went really deep into that because— and how do you have a conversation when they go, I'm not going back to 2001, are you crazy? I'll go back to 2022. And how do you handle that conversation? And that's kind of the value of the Law Lab is we kind of all dug into what we've had to say because we've had those conversations and they're not easy conversations because it's not cheap to go all the way back to 2001.

Yeah. Or when they say, I'm not going to spend money for you to find a nickel.

Yeah.

I'm not going to, I'm not going to handle that leftover nickel on this client's ledger account. It's like, well, you have to. Yeah.

Well, it's like you both said, it's the structure. It's the foundation, that chart of accounts. And what's fascinating is, is sometimes we get into them and I jokingly said the vendor names. Sometimes you see the vendor names on the chart of accounts. So that's no place for that. And the question back to that is, does it— how does that fit on a tax return? And then what are your goals? I think, Steve, is what you were kind of saying too. It's how did you get here? Because what are the goals?

How'd you get here? Yeah.

Yeah. Yeah.

Well, you've asked, you've asked attorneys when you've seen stuff like that, like employee names and you're like, Would Sarah relate it right to the person? Would you like to take this set of books to the bank if you were trying to get a loan?

Oh, that's a great point. Yeah.

Yeah. You don't want that.

Because it's like, I wanted it this way. I wanted to see, I wanted to see Staples and OfficeMax and all of these on there. And you have to explain to them and educate them. There's other ways of getting how much you spend at Staples, how much you spend at OfficeMax. But then if you just say it like that, like the way these books are and the same Goes for the other conversation about the trust. How would the conversation go if the auditor came in? You've got this big giant unknown client pile of money there. Yeah, it's not going to fly. Yeah, and you can't have that. And that's the problem. And that's the biggest problem.

Which leads to some of the quick things too, and tips and tricks, is when you're looking at these cleanup moments. So we talked about the ledger. There's the whole thing about— and you just brought this up— is these stale-dated moments, these balances. Um, it could be anything. It doesn't have to be just trust. You could have old payroll liabilities. You could have shareholder loans with people that are not even there anymore. They're not even part of the company.

Paychecks that aren't cleared. I have seen paychecks that haven't cleared. They just, you know, it might not be for a lot of money, but they just leave. You can't just leave it. It belongs.

Or unapplied funds when they get lost in that quagmire.

Oh yeah.

Touché. That's a good Good term for it, Steve.

Quagmire.

I love that word, quagmire.

I'm going to try and say it. Quagmire. Okay.

And when you get that, when you have that on the books, like you're printing out, like maybe they came from desktop and they never saw those words. And then you get it online their first year on online, QuickBooks Online. They're like, what is this amount? Or this year it's been, what's this QuickBooks clearing payroll account that just appeared with a bunch of money in it?

And oh yeah, it's like it goes in and out depending on the date. You know, Linda, you brought up a really good point, and I think we've all 3 experienced this, is when you have those data migration moments, what is the data that comes over that you can actually rely on? And what do you want to go back to? That is also, if you're sitting on a set of books that are still unresolved, because we've seen it, we've heard it, move. Oh, well, that big trust bank account balance isn't balancing. So just go into another one, open up a new one. But where's all the data that occurred with that information? Where does that exist? And I think what you're saying is, is a very valid point of when you're cleaning up some tips and tricks on a ledger like that, you really do have to find this. You have to roll back. You've got to find the source data. And what happened at the bank?

How many banks ago did that happen?

How many banks ago did that happen?

They changed banks. And it's like, oh, the bank changes. Or some of them. And you've got these issues that kind of carry forward and carry forward. And, and, you know, when you're talking to the attorneys, they've been aware of the issue. It's been ongoing, and it makes them not sleep at night. So sometimes you can help them through the whole logic of fixing and cleaning this if you just kind of explain a methodical way you're going to do it. You have to go back to when it was last balanced. That's the only way to get going, to go forward. You don't want to go backwards. It doesn't work. So find that spot and go forward. And if you have to hard, you know, hard reconcile something because they don't want to go back, it's $20 delta and they don't know who it belongs to or whatever, you're going to have that in your books. It's going to show as the unknown client or whatever. And it might just be money you didn't move over.

Mm-hmm.

But you have to put it on the books wherever you make that start. So you really want to go as back, back as far as you have to. And a lot of times the cleanup in the earlier years isn't as much. It's not till you get to them when they get more robust. There's a lot going on and there's patterns we see and it can be done, but it's not a cheap date. It is not a cheap date. You are going to be looking at paying quite a bit to fix it. That's why you have to have good processes to go forward so that you stop the bleeding. That's a big deal too.

Implement a monthly ledger review protocol, a workflow for, for closing the books each month. And to your point, Linda, when the question comes up of, okay, my trust account's out of balance clear back to 2001, the best answer is we're going to chronologically balance it to the best of our abilities back to 2020 because that's what you've requested. But we're going to report back to you and tell you whether you're still in balance or not. And if not, we're going to ask to go back further until we can find it.

And I think— I don't know if this is true or not, but sometimes they'll say, well, I can't get the bank statements back that far. But I think with a trust or an IOLTA account, don't they have to have I mean, you just have to pay for them.

Each bank is different.

Each one's different. Yeah.

Each one's different. But I do— I mean, to what you both are saying, one thing is, is when you get into these, um, messy accounts, we've also seen places where an entire credit card was not added to a prior year. Now you have all these expenses, right? That— what do you do? You have to make— it's not your decision to make. You have to engage a tax professional. You have to engage the owner to go back and say, is this worth it? Because It's in my experience, at one point it had a lot of client data on there.

And we've seen it.

It was all advanced client cost.

You get this book of business, you know, you get the data file and you're like, what is this credit card with a giant negative balance? So the bookkeeper was booking in all the payments. Yeah. There was no evidence of any expenses put in, like Sarah's saying, and you don't have anything. And a lot of times there's client expenses on there that has to get put in. And then did you not recoup them because you didn't have them in the books somehow?

And Well, I'll tell you what it did. It overstated your income because you had no offset. So now you've just paid taxes on something in a prior period. This is why it's so important to really have this, this kind of viewpoint of what am I not seeing in here? Because if you're overpaying in taxes, is that really what you wanted to be doing? Only to receive it back a couple of years later if you're lucky, or refile.

If you're lucky. Yeah.

If you're lucky, and then refile. Or you started your business, a friend helped you do the taxes, they didn't do it quite right because it wasn't really a certified— they just kind of generally knew. And then we professionals like us get in and we're like, whoa, where's all this stuff? It's missing in your tax return. It's not our position to find that. It's just, it just shows up, right? As, as business owners, we ourselves will see stuff.

Your credit card example reminded me of one that I came across on a new file.

Okay.

Um, where through the bank feeds it posted everything backwards. So—

Oh, I've seen that.

Have you seen that? Yeah. And so what they did is they went through and they reconciled against the real transactions and they left all the— they had to finagle things around and they left all kinds of uncleared transactions on the ledger.

Oh.

And it totaled, you know, it was a little under $20,000. I'm like, well, what is this? Oh, that was that mess from when they brought it all in backwards. And I'm like, well, we have to address that. We've got to clean that up. And it was a prior year. And it, you know, to your point, Sarah, we had to get the tax preparer CPA involved. And what do you want to do here? Here's $20,000 of, you know, stuff that nets out to $20,000 in expenses. You know, that reduce their taxable income in that year. So where— what do we want to do with this?

Yeah, and it's not your decision solely, obviously. You do need— I would never endeavor that alone in that way. I would talk about it and say we need to involve the tax—

Tax person. Yeah. And I think when it comes to client ledgers, a lot of times we get them and they've only got the one because they hooked up Clio and everything dumped into one, but they have no Clue. For us, it's easier to visually map it out to the subledgers of each client so we can see the listing. I know not everybody does that, but it's, it's something that we, we like to do because especially if they're big, if it's a big file, because then you can really manage it. The fund is all done and, you know, the people, they're all done. They've closed the matter. You can get rid of them. I don't know. It's just, and I like to be able to hop in and then the bar likes that. So they like to hop in and get the ledger for the bar. It's so simple because the ledger's there. It's like the little mini check register for each client. And I think that that helps keep it orderly. And sometimes when you're trying to dig through and you can't figure out who it belongs to, sometimes you can go in and throw it into that unknown client account as you're going through and trying to get the details from the client, you know, or the office. Like, this happened and this money came in. Does anybody have any record of who it belonged to? And then when you get done doing the method of kind of doing what we're doing, you'll see Oh, this person brought in, you know, this person's got $10,180 negative in their account. They have no trust funds coming in. But then we see that there's $10,000, like the check came in from the insurance company is $10,180 sitting in unknown. And you kind of can put the two together and realize that those two probably—

That's a great way to do it.

Yeah, it's easier to find. It's kind of like finding gold when you're trying to go through these, especially the amounts. Unlike family law or some of these You know, practice areas that go into so many of the same amounts. When you get into some of the other files, you can start to see patterns, patterns based on—

And being the, being the number, numbers geeks that we are, it's fun to do it that way because once you clean up each ledger and then you've got that unknown client one where you're dumping everything you don't know about, you're like, oh, I get to get rid of that $10,000.

Yeah. You get one off the list.

It's like a puzzle, a jigsaw puzzle.

A jigsaw puzzle. You know, it's fascinating too, as, as you were saying this, Linda, I was thinking about one that Recently that I was looking at. And I, yeah, it's always hard to remember this, but you're looking at someone else's work product too. So what if there was a bookkeeper before you, but they don't have that depth of knowledge, or it's that paralegal that got dumped on that was like, here you go, you're gonna, you're gonna do this work. And so you're looking at your— and now you have this extra layer of what were they thinking?

Yeah.

Because the way that they worked the product You know, the ledgers— every ledger is a little different. Every ledger is going to display itself slightly differently in how it's going to show you the information, how it moves from bank to bank, and so forth. And I'm looking at this and I was like, I can't have this tangled up. Well, it unleashed what was attached to that transaction, was a lot of other transactions, and it unraveled this big mess. And now you've got a bigger mess. So kind of what you're saying, both of you, is you have to look at these workflows Look at these little micro moments, and then hopefully you're not creating more chaos when you're trying it. But to me, Linda knows this, I always follow the money. Where is that money?

That's the source of truth.

Yeah. And it doesn't matter what these external practice management softwares retain. That was your intent, or, or lack thereof. Maybe you didn't even put it in.

So, but we see that like with Clio. So a lot of times we'll start to see the pattern where there's Maybe you'll hop in a file and you'll see undeposited funds for the last 5 years sitting inside of Clio, but everything's been booked.

Yeah.

And we're like, well, what are these extra transactions? And then you spot the problem in the workflow, that there's a problem in the workflow. The attorney's going back and making some changes in Clio. It's shipping another transaction over and no one's been— no one's paying any attention to undeposited funds.

Yeah.

And then it's got this big bloated balance. And why didn't the tax person ask about it? But it depends on the tax person. Not everybody's that versed in QuickBooks, right? And you start to figure out and see the problem, and then you need to work with your client. Don't make them keep going with these problems. You want to lock out the period.

Yeah.

Now that they can't push any more data in, that's double data coming back from Clio because it's a one-way sync on some parts of it. And then you're stopping the problem of all this cumulative deposits that's sitting under deposited funds and not, not go anywhere. And then you need to go in and clean up that and figure out, okay, well, look at the red— you have the register open here, you've got the undeposited here. Okay, so this goes over there and you start to see where they're supposed to go. Maybe the person didn't do anything wrong in Clio. They just used the bank feed in QuickBooks and just deposited everything into sales or income, legal income, and nobody put the payments in. We've seen that too. It can go page after page.

Yeah.

So if you work in QuickBooks, I remember the first time I discovered this, I always had these workflows and I never had more than a page of undeposited funds. And a big mistake I made when I did a job was I, I looked at it and saw the one page of 50, and I, I quoted that, and I didn't realize, realize it was 50 pages inside of that, that if you went to the next page, it was 50, next page was 50. Oh, I had to eat that one.

Terrible.

My mistake.

Or, or software.

I, I'm—

in my example, I've shared this with you years ago, hooking up particular software, and it brought in all the open AR. But that open ear was not correctly marked in the other software. So then I had to deal with it on the other side. It was like ridiculous. It was an error in integration and it was such a problem. And so there's so many little cleanup hacks that you can do. I think it's like the Starbucks, like, right out of the box.

You kind of need a list. I don't know, we might have one somewhere with the Lala, but you need a cleanup list.

Yeah.

Methodically go through each one. And then you need a list for when you're doing a quote to a client so that you know what to look for that you don't miss the 50 pages of undeposited funds, um, or, or any little thing that you didn't realize. Sometimes we, we try to figure out what we're going to charge for a cleanup, and then we open up Pandora's box. It's a lot worse or bigger than we thought.

Oh, yeah.

Um, it's happened, but sometimes we have the opposite happen, so it kind of balances itself out. And when you get better the more you do them, but I can tell you that if you have one of those disaster cleanups where it's like, okay, Sarah and I, we made a mistake, And now guess who's doing work on the weekend because it's not going to be cost-effective?

I think we've all been there.

Yeah, we are. It's part of life, right? But, um, yeah, know that we've all done it and it's missing things when you're doing a— that's why a good checklist is nice to have. Check off the list of looking at every single thing because you want to make sure.

The thing to do too is on either side of the fence, one side of the fence being the attorney and the other side being the accounting bookkeeping side is not to be afraid of it and not to be, not to be in a rush. And a lot of times the attorney side will be in a rush because they finally admit that there's a problem. Yeah. And so you have to psychologically prepare them with your work methods and your workflow and that you're going to get this done, but it's not going to be done short order.

Right. And you want to tell them the expectation is 2 months down the road, hey, if you get it done in 6 weeks, you're the hero. But if you tell them 2 months down the road and it takes you 6, they get mad. So you don't want to do that either. You want to really outperform your own, you know, date, and it takes time.

It does take time.

And sometimes the, the stopping, the stopping block is the client not providing what they had, and you have to ask for spreadsheets. We say, we've said this, I think, almost every podcast. They have a side spreadsheet somewhere, like they were tracking it on a spreadsheet at one point. And if you're having to dig back a lot of years, ask about that because it probably exists that there's a spreadsheet somewhere.

So I guess the question is, it's urgent enough to hire somebody, but you've lived with it for this long. Why is it all of a sudden urgent enough to have it accomplished? Not that you want a project to go on.

Be an audit. Yeah.

But I guess that's the thing is, is going back to when you're inquiring and doing this discovery moment and trying to figure out what's going on is what is the impetus behind it? Some people do it purely because it has been nagging at them, as we brought up earlier.

They want to sleep at night.

Exactly. The other part is kind of what Linda's saying is you got to set the boundaries in a space of like achievable and obtainable, but not to your point, Steve, at a speed or shortcut it. Because you, you don't understand it. We've had other accounting professionals come to us and have us look at it with them. So being smart and hiring another person who has deeper knowledge and saying, okay, can I get another set of eyes?

What would you do?

I really just need to look at this. What am I missing? And honestly, I'm going to tell you right now, it is not an easy thing for it to find. In AI tools. So if you're thinking that's your out, I'm sorry, it doesn't make up for human error in other areas and lack of data and lack of information. It's just looking at, at the structure of it. It's not looking at, you know, it doesn't have the story behind it. So, and there's a lot of pieces to this. So I throw that out with a word of caution because you really need human piece to, to your point, Steve, that you brought up. And, and Linda's saying like, Have a checklist, build a structure for yourself. And not every file is going to be the same. They're, they're all going to be different.

I mean, we would like them to be cookie cutters, and that quote's going to be cookie cutter, but they're not. They're just not.

Yeah.

Yeah.

Well, you know, a great example to use too is with them when they're really in a hurry and they think they can have it done in 2 weeks or whatever. I use this comparison of, you know, the ship has left the harbor with the anchor dragging. And, and each of those links on that chain that holds that anchor down have to be pulled back in and made sure that they're still strong and that they're still all pulling together to make— and, you know, a lot of people stop and they go, yeah, I, you know what, for some reason that, that pings with them and they, they kind of give you the grace of being able to get through it and, and understanding sometimes that it does take longer.

Can we change the title of this?

I'm kidding. I love the harbor.

With the Anchors down.

With the anchor dragging behind you. Well, this was a good conversation. Thank you both.

It was.

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Well, thank you both. This was good.

This is a good topic.

Yeah, it was great. You guys have a good day.