Maybe Your Paralegal Shouldn’t Be Handling Bookkeeping…

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

Welcome back to the podcast, everybody, and we are Sarahless.

I don't know how else to explain it. Sarahless today.

Wah wah wah.

Yeah, darn it.

It's, it's different, but that's okay. We can, we can wing this, Steve. We can do it. We can do it.

We can, we can. And I hope she's having a good time.

So I do too. She's on vacation, so we're hoping she's having a blast, and it's going to be good for her to take a chill a couple weeks.

Sure.

She's worked so hard. She really deserves to have this time off. And, um, because we have a business coach now who is amazing, um, you met her, she's amazing. And she actually, instead of everybody throwing messages, because as as almost all accountants have, they have multiple channels of, do I— did I look in Slack today? Did I look in Lissio today?

Right.

Did I look in Carbon today? And there's so many places like, oh crap, I haven't been in Lissio for a while. And then I go in there, I'm like, oh my God, these people must be thinking I'm ignoring them. Our business coach said, let's create a living document, Google Sheet, a Google Doc, and anything you have to tell Sarah, you can put it on it. And she gave us a form. So it helps prioritize it. Sarah doesn't get it until she gets back. So she's not seeing messages and peeking at the, at the files and looking at things and looking where we're communicating and getting in the middle of topics. She's taking a full vacation, which everybody I think needs.

That's so brilliant. She actually gets to check out. Good for her, you know.

Yeah, it's really good. Really good thing. I think it's great. The whole idea of having that one sheet that you put back and then you can focus on it. you can arrange it the way you want to arrange it. And that way, you know, hopefully everything's going to be handled. I'm still here, which makes things a lot better. So things can keep moving. Like if I go out, she'll be there. But I think, you know, and having the coach too, she's like, you know, when you go, I'm here too. And she even said, I'm here if you need me to go over anything, if anything comes up that you're trying to, you know, I don't have Sarah to call. So that, which is nice that she did that. So she's amazing.

But awesome, awesome.

Our topic du jour, which is one that we bring up a lot in conversations that we have, and it's— this one's called Maybe Your Paralegal Should Not Be Handling Your Bookkeeping. So what do you think about that, Steve?

Well, you know, having good— lots of experience working in law firms, I've been in scenarios where they've pushed different non-paralegal type work onto them, and it— I have never seen it be successful ever. You know, it's kind of one of those, you cut off your nose in spite of your face when you do that because you, in my opinion, the biggest glaring thing that happens is that you missed opportunities for creating more revenue because the paralegal is supporting you as an attorney and supporting your team if you have one. And if they're put into bookkeeping, it's not something, number one, that they generally want to do. They didn't go to school for it and it just waters down the whole operation.

Well, I can tell you a story because this happened last week when I met with somebody and they had a— I think it wasn't exactly a paralegal. I think it was the office legal admin that was doing the books. And she said to me, I don't— this, this was one of the partners. I don't think she was doing the work the right way. So I said, oh, okay. And she came to me with a training because she wanted to understand advanced client costs. So she wasn't really there for me to take the job like that. And then once we pulled it all up on the screen, I mean, it was glaring that things that were wrong— negative bank balances, negative advanced client costs, which by the way was on the P&L. So, you know, you've got, you've got profit and loss, you've got balance sheet accounts on the profit and loss. They just don't have that working knowledge of—

Correct.

Accounting and bookkeeping. And if They're trying to do the best they can because maybe they're the best paralegal in the firm and the, the owner is like, well, we don't need a bookkeeper, we can have them do it. You run the risk of having somebody do that work that is not educated into where things belong. Then you're running the risk of the possibility of maybe having inflated income because you're maybe attaching Clio and you're pushing the invoices in, but then you're Going to the bank feed and seeing the money come in and money to you is, oh, that's income. Boom, income account. And then you've got all these payments and things coming in the bank feed, and then you're not matching them properly, and you might be doubling up on the income. Not knowing where advanced client costs go or what they are, or even reconciling that account if you do have it on the balance sheet, another problem you can run into.

Well, you know, then what happens when one of the projects or clients that you're working on suddenly has a lot more paralegal-type work that has to be done? Suddenly the books become last place, which they've already become last place by farming them out to the paralegal. So you have to be really careful with that. That just, just doesn't work.

And I asked her, I said, are the books balanced? And she said, oh yeah, she said she was reconciling. And sometimes People think matching the bank transactions equals reconciliation, which it kind of does in Xero, but in QuickBooks, no. And when I took a look there, I could see somebody had attempted to reconcile, but the beginning balances were off because somebody had deleted transactions that were reconciled in a prior period. And this person didn't know how to fix that.

Oh boy.

Because that's a hard thing to fix sometimes, right? When you come into— we all come into files like that and it's like, what happened? And Then you ask somebody like, what happened here? Did you delete something? Oh, first they say, no, I didn't do it. And then you pull up and you see who did it. You can see the transaction. Oh, I guess I did take that off. I didn't realize it had cleared the bank.

Sure.

And then you're looking at that kind of a situation. So there's a lot of places where this can become an epic failure, and mostly because the person that's a paralegal went to school to be a paralegal, and now you're having somebody that should be doing this kind of work, paralegal work, Which a lot of times is billable work. And you're putting them in a non-billable space, giving them a job that's beyond their capabilities. They do the best they can. And God help them if they use AI to figure out where things go.

Right.

Because that could be wrong too. And then, yeah, you're sitting with— in a space where, like you said, it gets dropped because the work's got to get out. You got to do the bills. We got to get this going. And then, then they're sitting in a place where it's not being done.

Well, they, they didn't go to school to do this. They didn't pay to go to paralegal school to do accounting. They're, you know, generally they don't want to be a number cruncher. So it's just not a good environment at all. It's just not a good smart business thing to do. And, you know, we have attorneys for a reason, we have paralegals for a reason, and we have accounting people for a reason, you know. And respect— go ahead.

It's worth noting that, I mean, yes, you have to pay for us. And I know sometimes, I know when you're having a conversation with the attorney, you know they're looking at you as overhead. You are overhead, right? There's no billable time coming in because I'm doing your books. But if I can save you money, which I brought up with this lady, I said, we've got this amazing person, Steve, who has a side spreadsheet.

Oh, bless your heart.

Yep. And I said, there's a side spreadsheet that you should have on the side to keep there so that as you find things and you save them money, Like maybe you notice that they've got software that they're paying for, that they're paying for 17 users and there's really only 5 of them being used. You see these things, you know, because you work with multiple law firms, what things are being used, right? What software is being used, which ones are successful. You're able to comprehend reports and do the explaining to the client about the reporting. And there's still so many things there that I think you're going to miss out on. If you just skip the step of hiring a bookkeeper, whether they're in-house or outsourced.

What if you use a— what about payroll? I'm just going to throw it out there. What about payroll? Oh my gosh. Yeah. I mean, that's a whole can of worms in itself. I mean, do you want your paralegal handling the payroll? And do you even want them knowing what everybody's salary is? And, you know, and if you have court deadlines, That you've got to get filings done for and responses done for and all those things that the paralegal supports you with. And then the payroll gets missed, or somebody's insurance doesn't get deducted from their paycheck or whatever. There's a million different things that happen in payroll world that the accounting team does for you that the paralegal definitely should not be involved with.

Or even if they're— say there's bonuses and compensation quarterly or whatever, and they're done on a spreadsheet. If somebody doesn't even have the skill set for Excel or Google and you're having them do that work, I've seen it where I've been given, you know, somebody's looking to hire us and then we ask where the compensation sheet is and we get it and there's no, like they must be adding it up on a calculator or something that's not even having any formulas in it. So, or the formulas are there from a prior bookkeeper, but then nobody captured all of it. Or nobody made sure it matched the books, or—

Or—

Nobody tied the books to the tax return. And that's one of the things we see a lot. It's not an easy task. A friend and I— a friend of mine, we were thinking about doing like just a session on that for people because it's, it's not easy. You kind of have to dig through it. And the bigger the law firm, it can get even more complex, especially if there's multiple partners and multiple K-1s or things like that. And like you're saying, Steve, like, what about if there's a 401? Like, a lot of these states are requiring 401. Are you going to have the paralegal handle that too? Because that's a part of bookkeeping.

Well, and you know, accounting people talk to the CPAs.

Yeah.

Do you want the paralegal talking to your CPA and getting behind the scenes in your business?

And that could be intimidating for them. They might not speak the language of a CPA. Because I can remember being scared when I first was a bookkeeper. I don't know if you remember this, when they were like the tax— back in the day, back in my day, they used to into the office. And he came into the office.

Right.

And I was terrified of this guy because he was, he was just scary. And he would say things that I didn't know the acronyms. I was just, just starting out. And I can remember that. And imagine being a paralegal in that position because you don't want to fail your boss. I remember that clearly. I remember it wasn't until I started my own business and I ended up meeting another tax person who was so kind. And he actually helped me with things. He's like, anytime, just write to me. And I was like, oh, nice of him. And then he would feed me clients, but he kind of groomed me into it. So I learned on the fly as I got into that. And he would explain things to me, like why somebody should come out of being an LLC to be, you know, maybe do the S corp election. And he explained in easy understanding of why you would want to do that. So I would hope that if you're going to have the paralegal do it, I just Take that course and get into it. It's free. If you have your bookkeepers doing this or your paralegals doing this and they don't have bookkeeping knowledge, they also might not have QuickBooks software knowledge. So I'd start with just getting ProAdvisor certified so you understand how to use the software and do it right. Especially, I don't know about you, Steve, but I worked in a file this weekend and honestly, the pop-ups, I wanted to put my fist through the screen.

Oh, I don't know where that's going.

So many windows.

Yeah, it's overwhelming now.

There's a lot of options. No, I don't want the AI. No, I don't want this. No, I don't want that. I'm like, oh my God, it was ridiculous. And you got to do that every client file that you go in. They all pop back up when you go to a new file. And I'm like, ugh. So what if they see something and they say, oh, let me try this, right? And now it's costing you more money. You know, subscription models. And then if you get into the software, yeah, you probably have a really good knowledge of like Clio, you know, the legal tech software from that aspect, it's probably good because they know how that works. But do they know how it works when it hits QuickBooks if it's connected? Do they understand the integration of the software?

Well, it's so easy for them, to your point, to go into Clio as an example and change the settings because they think it's going to be so much easier. And boy, they just blow up the whole thing. So yeah, no, no, no.

But the, like, the advanced client cost section is kind of tricky. And if you don't put the right accounts, because that's what I see a lot too, is the chart of accounts is It doesn't make a lot of sense, and it maybe makes sense. You see the same repeated patterns on people who are maybe a new bookkeeper or somebody who doesn't really understand bookkeeping, and that would be somebody that's a paralegal. And you see them make these accounts on the chart of accounts, you're thinking, well, what is that? And then there's a story behind it, and they thought that was a good name to call it, right? And they make up a name, and it's kind of like, okay, so that's what they decided to name it, and they don't even know what Type of account to make it. So if you don't know the type of account, yeah, it's— I don't know.

You know, I had a— I had my— I've mentioned him before, my mentor in the, in the legal industry. The, the very first person that hired me in the legal industry to work in a law firm was a CPA, a lawyer, and an IRS enrolled agent. And even he, even he had the, the knowledge to know that they should not assign the books to somebody within the law firm. They needed to have an accountant/bookkeeper person doing the books. Even he, who's a CPA and enrolled agent, the whole bit, he knew better. And I learned so much from that man. But it quite often happens that, you know, the CPA does not understand the QuickBooks scenario for a law firm because they're, they're doing all kinds of different clients. It's kind of like if we aren't niched down and we're doing all kinds of different clients, you don't know all the nuances that are involved.

Yeah.

And to the point of giving it to the paralegal, it's the same thing. They just don't know what they don't know.

And I think the biggest thing, like you said, was the fact that they're in payroll. They know what everybody makes. And if they have loose lips, that can get out. And that's, that's really one of the main, I think, protections is having that outsourced firm. We're not in the day-to-day. We don't know the people on a personal level. We do usually work hand in hand with whoever is in the company that's handling maybe the money coming in, making the deposits. We do have to work pretty closely with them, the person running the payroll that's actually processing the payroll, gathering the receipts, all that, gathering the bills and all of the things and what, what bills went to what clients. And we have to have that kind of connection with somebody. But I think that having the peace of Who knows how much everybody makes. It's nice to have that outside of the firm, which would keep anybody from thinking, well, that boss makes a lot of money and he drives around, he or she drives around Ferrari, and they don't work on Friday because maybe they do something. Not knowing that a business owner works all the time. 5 o'clock means nothing. But sometimes that can happen and it can really sour an entire firm. It could be multiple people and, you know, I'm tired of doing all this stuff and they don't care or whatever. And I think sometimes having that piece chunked out and moved to a professional is definitely going to be worth the money that you pay to have that taken, that part of the work taken out of the day-to-day inner workings of the office.

Well, and to your point, knowing the different salaries, um, let's say there's a junior attorney and there's a senior attorney. They make different salaries, and paralegals do deal with a lot of the emotional type work that happens in a law firm on behalf of clients, just like the attorneys do. And a lot of favoritism things can happen in that scenario if they know what the bonus is going to be and they know that maybe the junior attorney is having a difficult time financially or trying to pay off student loans. There's so many dynamics involved in this. This is why you segregate things. Within the law firm. It's, it's just, it is such a safe way to do it. Just don't, don't give it to the paralegal.

It can get ugly fast.

It can. It totally can.

You know, and then also like the duties aren't happening, so you're not having the tasks completed.

Right.

The reconciliation was mind-blowing to me because some of the mistakes went all the way back when, on this particular person, to 2021. So they had not really reconciled since then, and I think there were duplicate accounts Looked like some things were typed in lowercase, some things were typed in caps, which if you're a really good bookkeeper, that's going to really annoy you. I think that those are the things that you want— nice neat work. We want it reconciled. We want somebody who can really look at the financials and explain them to the client too, so they can understand where the trends are, where they're going. Maybe there's a budget involved. All those things are going to get dropped if you're going to have the paralegal do the books. You're just kind Kind of treading water with your accounting.

It's just— Well, how about this? You know, the firm buys, uh, furniture, furniture fixtures, and equipment. What is the— what's the threshold for depreciation? They're not going to know that.

And 1099s don't happen.

1099s don't happen. Setting up on the chart of accounts, an attorney— I've seen this happen— an attorney will come in and say, hey, I go to court a lot, I need a new pair of shoes and a new suit, I want to put that on the firm and pay for it. And they'd be like, well, fine. So And then they, you know, the, the naming convention of the chart of accounts.

They might have clothing expense on the books, right?

Right.

And you often wonder, like, when you see this scenario and you see that somebody's had it for a while and you, you kind of approach the job, when you look at it, then you see that the paralegal is doing this work and you see the, the results. What does the tax person say or do? What is their ownership in this if they're processing a tax return based on this— I would call garbage, right? So it's not accurate data. Like, how is that handled on a tax return? Because— and really, the only way you'll know is to tie the books to tax. But where are they putting the clothing? Are they just disallowing it so nothing ever ties back? And if there's ever an audit— I mean, we didn't even get into the trust. Like, the trust account would be a whole nother area that if it's not done right, I mean, wire fees could come out of it. And if they don't know what to do with that, they post it to the, you know, bank fees expense. So it throws the trust out of balance, or the interest gets put into interest expense, and the interest coming in goes into interest income. And does it ever really affect the books? Not really, if you're looking at one offsets the other, but it really belongs as a sub-liability account, an interest clearing. And I think the fastest way, if you've got this scenario and you're listening to this recording and you're going, hmm, I have that in my office, I wonder if I— if my books are balanced. I mean, take a look, go into the reconciliation screen, look under the accounts, go into your balance sheet, pull it up, and just take a look at where is the trust liability account balance and what's the bank balance. Those 2 balances should align. If they don't align, then you got to throw it up and put it on all and then do it by year and find out what year this thing went awry. Hopefully it's this year and you can correct it easily. Hopefully it's not 10 years ago that you're going to have to do a Cleanup, because that can be very expensive and you really want to make sure you're ready if there's an audit. I think that's the other thing. If you're not audit ready, what do you do in a case like that? You have to find somebody. It's expensive.

The buck stops with you as the owner of the firm or the partner of the firm. So if you have your paralegal doing the trust accounting and it does go awry, the buck stops with you. The paralegal is going to go home and sleep at night. You're not.

You know, and you don't have a lot of time to get it fixed, right? If it's really messy and it's done internally and you go to the bar and you say, look, uh, my paralegal is doing the books, they're not going to be very happy with you.

They're not going to be happy. That's a good point, Linda. They're not. The bar would not like to hear that.

I know when we've had to clean them up and do the work to give it to the bar, um, I know that they're very happy that an outside firm that has nothing to do with the law firm is actually doing the work. And finding the mistakes and corrections and, and taking action to keep it on the straight and narrow because it's not their money. And it's very important. There's a reason why all those bar rules are in place, because they have to track whose money, where everybody's money is. And yeah, I mean, I don't think I'd want to put myself in that vulnerable place to save— how much money does it cost to have the bookkeeping done? If it's a small firm, it's not that expensive to have an outsourced firm do it. And then you can sleep at night. That's the big thing. You can sleep at night. You're getting your 3-way bank reconciliation monthly. You're getting all your financials monthly. And I think a lot of times these firms don't even look at financials except right before tax time.

Exactly. Well, you know, I can remember one firm I worked in. I was their accounting person and it was a full-time job, busy job for me. But I was given the responsibility of docketing, which I really enjoyed learning, but I was given the responsibility of docketing and then also When the paralegal would go on vacation or the lady who did normally did the filings for courts, it was my responsibility and I would freak out. I'd be like, oh no, right? You know, she's going to be gone for a week and you want me to do all these filings and they're due on this date and they have to look like this and that so they don't get rejected. It's the same thing.

Yeah.

You know, they took somebody from accounting and put— and I, I really enjoyed doing docketing. I thought it was a blast.

But finally, funny that you said that you worked for a law firm, that the person was a CPA and an attorney. I have the same background. I actually worked for a law firm. There were 2 attorneys. One was a CPA and an attorney, and the other one was just a straight-up attorney. Funny, great guys. They were in their 40s. I think I was in my 30s at that point. And I learned a lot in that job.

Sure.

I learned a lot about people in that job, and they were just fun guys to work for. And I really did learn— you do learn a lot when you're in that scenario that you worked inside that. And I wasn't there that long, but it was—

Oh, he mentored me. I will be grateful to him. He's passed away now. I miss him so much. But he mentored me and he, you know, he was brutal with me in the beginning. He was like, no, that's not how I told you to do it, you know? And he got me on the straight and narrow. But I'll tell you what, I learned so much from that man.

Yeah, yeah, yeah. And he wasn't scary. Well, he might have been scary in the beginning, right?

A little bit. But, you know, watching him in operation as an attorney, we did a lot of corporate and—

Yes, that's what we had here too.

Okay.

We had a lot of IRS cases too. Like, he wasn't an IRS agent, but he would help people out of IRS messes. And those were always fascinating to me.

Sure.

Fascinating to me because I was also the— I did like receptionist, bookkeeper. I had kind of a multi-tiered job. And I can remember being the person answering the phone and knowing that somebody— like, I knew the history of, like, we were getting the records together and everything for the IRS. And I remember talking to one guy, and I was like— I'll never forget it. This guy's name was Fred, and he's deceased now. But he was like— I was so worried for him. He was going to get in trouble because he was in trouble in a whole bunch of areas. And I can remember him calling in, and I said, oh, we're working on it, we're getting it ready, trying to, you know, ease his— and he's like, oh, I'm fine. He says, I'm in Florida right now with my toes in the sand. And I thought, I'm losing sleep about this for you, Florida, with your toes in the sand. He didn't. He was just that personality type. Like, if that was happening to me, I would be a hot mess. And he just laid back. Everything was, everything was great. He did everything, you know, he paid whatever fine he had. He got in trouble, but he didn't get in that big of trouble. And it was funny because I Remember him distinctly because later on when I started my own business, I ended up working for his brother as a client of mine. And he used to come in and he would walk into the office and I'd say, did you have a hard day at work today, Fred? And he'd say, oh yeah. He would share the office with the brother. And I said, you have a hard day at work today? And he said, yes. And he says, oh, it was brutal out there today. And it was in the HVAC business, right? Air conditioning. And I said, Really? It was a hard day. And he said, yeah. And I said, you gotta remember to take your golf shoes off before you answer a question like that. He had spikes on.

That's funny. That's funny.

We used to call him Fast Freddie. He was a wonderful, wonderful man. Um, their whole family was wonderful. Still a client today.

So. That's great. That's great.

With the children.

This has been a great discussion today. I'm glad we, I'm glad we decided to talk about this because it comes up a lot.

It does come up a lot. And if you're, if you're struggling with this, I think that, you know, it's hard. Um, it's going to be hard to take that away from the paralegal, but I can tell you that the paralegal will be probably really relieved. And then they can be like the backup, like Steve was the backup for the other person. But at least this way, you're going to really up your game of your records.

Right.

That's the biggest, biggest take from all of this is you're going to improve your record keeping, not pay taxes on stuff you shouldn't. You'll have a knowledgeable person who has an understanding of the taxes, and your records will be ready for any audit that may or may not happen.

Well, you know, one, one other quick thought. Do you want your paralegal doing your books? And also, because they're doing the books and they're seeing the accounts receivable, do you want them having a role in the accounts receivable collections on cases that they've worked on with an attorney in the firm? That's a whole different dichotomy as well.

Good thought. Yeah, that's not a good— yeah, yeah. So it's a good topic.

Good topic. Thank you.

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Oh my God, Tiara, we love you.

That was great.

That was really good.

Tiara has spoken.

Yeah. Well, until next time, everybody, we'll see you. Bye.

Bye-bye.