How do you evaluate your staff? Do you base annual reviews on objective information, or are your reviews entirely subjective? Is your only objective information annual billings? Do you even have that? While other industries moved to objective metrics for evaluating employee performance a decade or more ago, the CPA world has moved in the opposite direction. Adoptees of the value pricing movement tossed out time tracking and with it the most valuable objective measures of staff performance.
This post isn’t about the merits of time tracking versus value pricing. It’s about the importance of information beyond just annual billings per employee. As an example, let’s look at two CPA firm employees, Jane and Jill. Both bill $180K per year and get along well with their fellow staff. Both are considered ideal employees in terms of productivity by the firm’s partners.
However, Jane makes 1.5 errors per tax return, while Jill makes only 0.75 errors per return.. How does her firm know this? They track errors as an essential part of project management. But why is knowing error rate important?
First, correcting errors absorbs extra time in the tax prep process. Errors found at the review stage cause rework, either from the reviewer or the preparer. After correction, the return then needs at least a quick review to ensure the error has been properly corrected. In my experience, a routine data entry error costs fifteen to thirty minutes in additional staff time. Fifteen minutes times hundreds of tax returns is real money. Jane is costing the firm money.
Second, tracking errors by type presents training opportunities. In our practice, we track data entry errors, concept errors, and cosmetic errors. These different error types lead to different sorts of training.
A data entry error is a numerical error. For instance, if the W-2 form amounts don’t add to the amounts on the tax return, you have a data entry error.
A concept error is a mistake in applying tax law. For instance, if a basis worksheet is incorrectly prepared, you have a concept error.
Finally, a misspelling or something that doesn’t affect the tax return numbers, but needs to be corrected nonetheless is a cosmetic error.
Data entry and cosmetic errors are failures in a preparer’s self review. The solution is training in self review. From your college years, do you remember getting any training in reviewing your own work? I’m guessing no. Self review is a valuable skill that can be taught.
Concept errors are addressed with additional technical training.
Preventable errors cost firms tens of thousands of dollars in cost and even more in the potential loss of clients. Systematically addressing the causes of errors is essential to profitability. The place to start is tracking errors.
Thanks for reading!
Frank Stitely, CPA, CVA