First Attorney Client: File Review

Hi there, Linda Artesani, Artesani Bookkeeping. This week is all about the file review process. So last week we talked a little bit about getting your first phone call from first prospect and attorney client and the steps that you need to take to have that conversation to sound educated enough and knowledgeable enough to be able to handle the call. So in turn, you get to the point that we're going to be at today. Client has given you the access to the QuickBooks file, access to whatever platform that they're using for their time and billing, which could be a Clio, a LeanLaw, a lot of different things, a Cosmolex, a PracticePanther, you name it. There's a lot of programs, or it could be nothing. Or my example, it could be an Excel spreadsheet, which can be scary. But I'll tell you what, that happens a lot more than you can even imagine. So if you look at it from this perspective, so the client has given enough faith into you to give you access to their accounting records just from the conversation that you had and how you showed your expertise. Once you get to the part of file review, this is where you first need to charge for it. You can charge anywhere from $375 just to look at the file because it's going to take you some time and you should be compensated for that. Up to— we can even do up to $875 depending on the size of the firm and the complexity of the books. So you kind of have to feel your way through that. But the good thing about charging a file review is it's not going to be a waste of your time. Taking the time to look through a client's file and telling them there's going to be a file review fee, you're going to know right away if they're not willing to pay the file review fee and pay for your expertise, you're probably wasting your time anyway. Let me share my screen. I'm going to show you some of the steps that I take when I go through a client's file. Now, obviously, I can't show you everything I've learned in the 20-plus years that I've been doing this work and the things that I've seen. And I could probably write a book on all the things I've seen in client files. It'd be a pretty funny book, but— or interesting anyway. But I will tell you some of the processes I go through. So hopefully that helps you with your client file. Let me share my screen. I'll show you how I do it. So here we are in my sample file, which is a perfect place because it's kind of a dumping zone for— I invite people in so they can get the experience of LeanLaw and QuickBooks. And people have made some interesting account choices in the file. So I wanted to at least give you an idea of what it looks like when you get a messy book, because I'm going to say probably maybe a little more than 50% of the books that come to me— when someone's reaching out to you, they usually have a pain point and you try to extract that from them in the conversation. Most of the times the records are— sometimes they're good and sometimes they're okay, and then sometimes they're just a complete disaster. You find you get more of the disaster files in January, February, and March that they just didn't do anything a whole year, or they tried to do it themselves. That doesn't usually lend itself to good record keeping. You know, they're great lawyers. They do what they do best. That's what they hire us for, to take care of this. So first thing I would do is I jump in Client Overview, and this was never a feature until recently, and I love this feature because it really gives you a bird's-eye view of everything that goes on. You can see what accounts are attached to it. So LeanLaw, Hubdoc, and Parabola. You can see that it's QuickBooks Online Plus, and there's no payroll. So you get these things and the sales tax is enabled. And you might want to find out why, maybe check with the client to see if they are charged sales tax for the work that they do, or did someone just turn it on and never use it? So that's a question to have with the client. And then once you do this file review, and we've got a form that we use that we actually takes us through all the steps. So you actually have a place to go and kind of track through each section. We created that so that we don't miss anything. And that's the thing about when you start doing this type of work. Don't beat yourself up if you give a price, you think it's great, and then you end up getting the work and the work is way worse. You discover something that you just missed. It happens as part of growing. You win some, you lose some. That's kind of the way it goes. But here, if you get through here, this lays it out really nice. You can see the banking activity, you can see what's in QuickBooks, that none of the banks are really connected. things that are unaccepted, what transactions are unreconciled. Of course, this is my demo file. So it's probably not a great example. But you can see there's a lot of accounts unreconciled. I see that a lot with clients. They think because they did the bank feeds, it's considered reconciled. Maybe it is when you actually do the function of reconciling, but sometimes it's not. So you want to make sure it's correct. I would look at the, you know, the trust accounting to see if that had been reconciled as well. It looks like there's one, it's never been reconciled. So there's a problem. Of course, I know that this This person, this attorney has been keeping it on a spreadsheet. So hoping that that's how they tracked it in the spreadsheet. And it was kind of sort of reconciled on the spreadsheet. We've got one transaction in undeposited funds. I've seen and had some accounts that have had 50 pages with 50 transactions on them in undeposited funds. That can be caused by outside apps. So if you have a feature in the app that's set up and you have it go directly to undeposited funds, so you can group them. A lot of times what the attorneys will do is they'll, they'll connect it, follow the default settings, and then And they'll go to the bank feed and just download the banking, the money in the bank feed right into QuickBooks as sales income. And when they do that, that's typically when you see double. You've got the invoices being paid if you're, you know, looking at it as an accrual basis, and then the income is being dumped into sales. So you got to fix that, right? You got to clean out that undeposited fund account if there's a lot of transactions Fortunately, in this one, we only have one uncleared transaction just sitting up there, and we would address that as well. A lot of times I will look in the reconciliation and go actually into each account to see when it was last reconciled and to see if there's like a bunch of transactions just hanging from prior periods, just sitting there not cleared off. Why are they not cleared off? Another place you want to check. Aging— you want to look at the aging. We've got money in the opening balance equity account. So that's always a problem. We've got some negative asset and liabilities. There's a clearing account, which is interesting. And then there's an account named after someone. That's always fascinating. So if you see names— and I've seen this where people have named the income accounts after the attorneys as a way of tracking the checking, checking their income. I've seen it where employee names are on the chart of accounts for whatever reason that made sense to the person that set it up. Really not a great practice. And this is where you can see your transaction volume. So you can do— you can go by the transaction volume and just kind of see how many transactions were in this account for this year. And that'll give you a gauge as to how many transactions that they actually have in their books. And then you can come down here and take a look how many bank accounts, sales receipts. And it just goes through the litany of different types of transactions, just to give you an idea of the volume, how many transactions. Are you going to have to monitor and track as you go through? The next step I would do after going through this and really getting that overview, which is why it's called the overview, I would come into a profit and loss report. Now I ran this one by accrual, but I'm going to change it to cash basis just to see. And then I'm going to— I made it all dates because the data is kind of spotty in here because it's not, but normally you would do the year that you're being— the engagement would be for. If a tax return has been processed back in 2019, for example, you're only looking at 2020's books, and then you would just tie the books to the tax return to start the books off. Most likely they're not tied to the tax returns. It's a practice we do all the time in our— at our firm. And then, because that's in the past, and if it's been a tax return attached to it, we won't worry about it. If we find a lot of issues here in this year, and then we have a reason, or they're going to pay us to go back in the scope to look at the prior period. Definitely do that. Get paid for it. It might require adjustments being made in 2020 for things that happened in 2019, especially if you see a pattern of something that would really affect the books and the numbers where the person may have paid more on their tax return or less, and they didn't provide accurate books for their, for their accountant, a tax professional. So you can just come through here real quickly. Unapplied cash payment income. You can click here if it's showing those transactions and you can see that You know, there's payments here. And I— what I did was I have this here and I've got this next box. That's this next one. So I took this report and I just sorted it, grouped it by client so I could see that the, you know, that it's a zero at the end. So we know that the payments and the invoices equal, but you can see that the dates are different. So the invoices are all 8/31. You've got some payments 8/10. You can't get a payment on an invoice before an invoice is created. So that's the problem with that account. So it's one of the things I would look at. I'll come back over here. Come back here, we'll go back to the profit and loss. And you just kind of skim through it, it's going to give you an idea of what they have on their chart of accounts. Chart of accounts is definitely something you want to look at, especially if you know the accountant of the, the prior bookkeeper didn't keep good records, maybe didn't know the legal industry, or if the attorney did their own, you want to look at their chart of accounts. Go through it, make it law-specific, you know, get yourself a good chart of accounts to use that's very law-specific and kind of stick to it. So you have an even workflow as you build your client base. You can kind of come through as you see soft build, soft cost billed to clients as an account, billable expense income. So there's some accounts you can see on here that are really specific to firms, business legal fees received, litigation legal fees. You've got a little bit of that here, legal fee income, legal services, maybe it's the same account. So these are the things you'd want to combine. You've got sales of product. I mean, most law firms don't sell products. So you might want to look and see, well, what, what are those transactions? We've got some wages in here. You just go through it basically and kind of see what's in here. Now another way to look at this, this is a great way to look at it overall. And I would just come through and start to figure out what belongs, what doesn't belong. And this is actually set up quite nicely. Unapplied cash payment, same thing, but it zeroed out. So maybe somebody got in there and did that. But you want to kind of take a peek at this to see if how it's laid out, maybe you can clean it up. You see there's some deleted things that are in here that are, you know, this could be because I did all dates, but you could see that if there's something showing as deleted but has an account balance, you want to make sure you reactivate that or put it in the proper place. And just basically go through the books. And see how these records are created on the profit and loss. I would then go to the balance sheet because this is really like the lifeblood of the company, right? And just come in. Obviously, we know things aren't reconciled. Something we have to do. We've got a clearing account with $45,000 in it. Clearing account is usually typically zero. You kind of have— if you have to do a transaction that doesn't really work in QuickBooks, you would use a transaction. You use the clearing account to kind of clear it out. If you don't have— if you've got minus $45,000 in it, there's a problem with the account. You need to fix it. Advanced client cost account is a negative. So there's another issue that we have to deal with there. And looking at the records, just go through it. You would look at the AR, the AP, accounts receivable, accounts payable, go through the loans, see if they tie back. I would ask for these documents in this discovery phase of going through the file review. I'd ask for bank statements for the the period that I'm working through. I would ask for any loan documents. A lot of firms now have loans with PPP or they have SBA loans. You want to see those records. You really want to see all the loans on the books and see if the payments have been applied properly. I have seen things booked to loan expense. I have seen things booked to catch-all account. I've seen things booked to the craziest names you've ever seen. I wish I had written them all down because there's some really crazy ones. The miscellaneous account is always a place that like people just dump things. I don't know where it goes and they throw it in miscellaneous. Usually want to get that cleaned out as well. So you're going to come through here and obviously they've got a little bit of a hierarchical view of the trust accounting. So we would go into the trust account spreadsheet and see how this ties back. Of course, it's got to tie back to the balance in the IOLTA account up here, the bank account. So what I would do here is display the columns by months. Run the report. And then as I run the report, I would collapse the hierarchical view to make sure that my balance sheet balances match the IOLTA. So I would come down here and just close this trust account down. Find it here. So the trust liability account, I think we have more than one on this file. And just where we come into here, so it's called funds held in trust, I would close it down, and then take a look at the totals and see is my balance in here of my funds held in trust, does it equal the total in the bank? And you just start to go back and forth with the IOLTA trust account, bank account, and match it up to see if it, if it follows true to the spreadsheet. A lot of times the client, the client will do the spreadsheet all the way across, and this is really hard to follow. And they won't even track it by year, they'll do it, they'll just keep adding on to it like it's something that's growing and blooming. So you want to make sure that that's correct as well. That's a few of the tips that I would go through. I would methodically go through here. We do— there is a way to do like a checklist. So there's parts you want to look in that undeposited fund account. You want to look at the AR, the AP, anything that's a balance sheet account that needs to be reconciled, advanced client cost account. A lot of times with working with law firms, you can actually find them money. So they may have closed out an account and done a transaction, not cash the check. seen that or not even processed the transaction. So you want to look at those things too, because that can make you be the hero with your client, which is always a good thing. So I hope this helps a little bit. I'm going to be doing a group mastermind kind of a function very shortly. I'm working my way up to it that we can all get together and kind of work together. It'll be part of the QB Community Live education series. So this is kind of laying the groundwork for some of the steps as we get into this, and it would be working with me one-on-one during the week, maybe one meeting a week to kind of go over things, especially if you're just getting your first client and you're nervous and you want that person that's got really experienced eyes on the file or can be around to help answer any questions. So on that note, I hope you all have a wonderful week. Make sure if you're an accountant or bookkeeper that needs help with law firms, keep following me, hit subscribe. If you are an attorney and you have messy books, it's what we specialize in. Please reach out. Also join our Facebook group, QB Community Live. It is a fun and safe place to ask questions and get the right answers. So I hope that helps, and we'll see you all next week. Bye now.