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One of my co-workers has been at our company for 20 years, working in her current position for the past 6  years. One would think that with all these many years of experience the woman could actually think for herself and figure out a reconciliation.

Back in early 2009 we switched over to a new accounting system, SAP, and during the conversion some items didn’t go through correctly. For those of us who were fortunate enough to actually understand what makes up our Balance Sheets it was a simple case of making correcting journal entries and reversing Dec’09 accruals in the new system. I have the two largest reporting entities, with many complex entries and calculations, and yet I was able to work through the conversion and carry on for the rest of 2009 without having to worry about any “plugs” I would be carrying on my Balance Sheets. But not my co-worker.

To start, there is this concept known as “Deferred Income”. It sits as a liability on the Balance Sheet, and is the result of either having done a pre-billing (billing before actual work is done) or the client(s) have forwarded payment at their own volition to cover the initial project costs (cab fare, presentation costs, digital transfers etc). Deferred Income is an accounting concept which indicates that the company has not yet fulfilled the necessary steps to actually have earned the money as revenue. As part of the conservatism principle, you cannot recognise revenue until you have fulfilled all obligations — ie, you have actually done the work required to earn the revenue. So to keep things clear we have sub-accounts — Client Advances and Client Deferred Income; the former with regards to clients prepaying us, and the latter for when we do pre-bills. I keep these two accounts separate, and reconcile each one individually so I can easily tie out to what are true Client Advances and what is true deferred Billings Revenue. My idiot co-worker mingles the two, and the end result is that when she looks at the conversion journal entry from January 2009 she cannot figure out what the lump sum number is.

I have suggested that as it was Corporate Finance at a our Regional Headquarters who did the entry it would only be natural to actually ask for a copy of the entry, along with backup, to determine what happened. My co-worker waffled and said she feels ashamed that she would have to call NY and would much rather try to figure it out on her own. I, as a damn fine accountant, pointed out that there is no added value to her doing this as the most expedient course of action would to actually contact NY.

The situation as well also pertains to the way she treats Deferred Income. For all the affiliates working out of our office the entries done to the two sub-accounts are accruals, which reverse out each month and are reaccrued the following month at the correct YTD number. No other entries are suppose to flow through those accounts, and the numbers should easily be verifiable by comparing them to the Work In Progress Subledger and the Billings Report. What my co-worker has been doing is drawing down the number in Deferred Income to get her Revenues to balance to what is expected by Senior Management. I told her there are two problems with this — reported Revenues should never be at what is expected, but at what is actual (ie, if you forecast that your March 2009 Revenues will be $100K and they come out to $63K it doesn’t matter, the number to be reported is $63K) and I warned her that one of the issues with Enron was that they were massaging their Financial Reports to balance to their Proformas.

Another situation, which has nothing to do with Revenue, is her Fixed Asset Reconciliation. I quickly did it for her last year, as the Director of Finance had been on her case to provide a reconciliation. I did it once for her, and told her I expected her to continue doing so each month; she hasn’t. Now she needs to provide 4 months worth of reconciliations and told I got the dreaded whine … “beanieeeeeeee help meeeeee! I don’t know how to do this reconciliation”. I have crap loads to do before monthend; I have to meet with an employment agency rep tomorrow to discuss getting a temporary replacement for my assistant when she’s off for a month for her honeymoon; I have to reconcile intercompany; reconcile billings for tomorrow’s PST payment; meet with the IT Director to discuss discrepancies in the Fixed Asset Reporting System; and, to find $300K to cut from our 2010 forecasts across 7 affiliates. Teaching someonem who theoretically should already know how to do this, how to do a reconciliation will probably push me towards the edge.