I have consulted through a consulting firm for 5 years and worked in field for 3 years since I left consulting. I have also spent 4 years in Big4 examination.
I have consulted, audited and worked for so many absolutely horribly managed accounting departments.
The common pitfalls I have seen:
- No Reconciliations-So called "Controllers" who have only reconciled "cash", and no other balances for years. They have may have not even reconciled cash. However, they feel confident reporting these numbers to management as if they are based on fact. I asked these Controllers what's in these money statement accounts, and it's all in their head, they barely know when pressed, they don't have any supporting documentation, and they aren't updating the accounts appropriately.
- No automatic reversals for accruals. This is probably the easiest and most basic way to keep your books clean, but I barely see this outside of Public companies. It always, without fail, leads to accruals with no documentation, efficiently calculated accruals (think vacation/bonus accruals where every employee would need an incrementally calculated updated expense rather than one YTD entry), and long accumulated lists of accruals that could have been paid for, but nobody knows because it's too laborious to figure out.
- Misapplied cash. I have seen this so many times. AR clerks who basically just apply customer payments to invoices with no rhyme or reason. They don't care to ask for remittance advice. It always leads to upset customers, aged balances that have should have been paid for, and eventually, a decrease in revenue because no customer wants to interact with the accounting department.
- Non-standard month-end account calculations. If you spent even 1 year in Big4 examination, you begin to realize that there are standard ways to calculate simple things like prepaids and fixed resources. You have all seen the standard prepaid excel matrix or the fixed asset rollforward. These are standard because they make things easy to calculate, review and document. I am always amazed at the individuals with 10+years who create these strange and inefficient ways to track and calculate amortization/depreciation in Excel. They will use these horrible models for years.
- No disciplined monthly fluxes. Because everything is a mess, they never flux the accounts. How can they? they don't actually know what's going on. I'm surprised at how long this can go on for. I hear management pleading for help. They want to know what's actually happening with the company. The controller always is "Too busy" or "doesn't have enough help"
- Bare minimum GAAP knowledge even with a CPA license. I had conversation that went like this. "Hey I noticed that you didn't perform all the tests for the lessee according to ASC842?" The controller responds with "There's no option to purchase, so it's an operating lease". I ask, "Did you perform the other 5 tests?". "I don't need to because there's no option to purchase". "Okay. but…You actually are failing the PV/FMV test". "It doesn't matter because there's no option to purchase". Then it just goes round and round until an auditor comes and gives them an adjustment. This individual had 25+ years of experience, but he had no objectivity or humbleness to check himself and actually read a FRD/Viewpoint manual on the topic. This is actually so prevalent in the start-ups and private companies that I have worked for.
- 15+ day close timings. This is one of the most common. There is always some excuse, but it's always because the controller has no concept of materiality, no concept of disciplined accrual estimates, and usually is subject to all the other common pitfalls above.
- Paper mills. This applies mainly to the boomers and late gen-Xers. Everything is still done on paper. Paper invoices. Paper recons, paper JE support, Paper Month-end checklists. They are usually so proud of the highly organized departments, but when I need support for a 3+ year-old fixed asset/prepaid addition, It takes them days or even weeks to find it. I always hear "It's in storage somewhere", or "I wasn't here for that, and the former employee wasn't as organized as me". If you mention something like Bill.com or Coupa, they get furious or say "that won't work here" or "those software tools never work right"
- No automation. This relates to 8 above. Because they are so connected to their old ways of doing things, automation tools like flocast, bill.com, or anything beyond QuickBooks are never embraced or planned for. They actively hate change for some reason.
In 12 years of bouncing around from patrons and full-time gigs, I feel that as an field we should feel really embarrassed at that work that we are producing. I say we because this is our field, and barely anyone outside of accounting actually knows what we do. They judge us on the numbers we produce. In the mid to small industry, we are just not providing quality output to management. Whether it's the local CPA firms, or the internal controllers running the money management departments. I think there is a serious reputational uncertainty. There are only so many Big4 CPAs to go around, and the public companies hire all of them. This is leaving small businesses and mid-size companies struggling to even understand what is happening to their businesses. You don't have to be a Big4 CPA to produce quality work, however, I would stay far away from the Robert Half contractors or other recruiting firms posing as consulting operations.
It's definitely fair to say that I am biased because I spent 5 years as a consultant. Therefore, I am more likely to see these disasters.