ed-mendlowitzEdward Mendlowitz, CPA
Partner, WithumSmith+Brown
Special Guest Post

Time sheets are an essential part of any professional services organization. Some people contend that they should not be maintained since they should not be the basis of any pricing – that fees should be solely based on the value to the client. I disagree.

Even if we assume fees should be solely based on “value,” time records provide an important role in information and control and should be maintained.

Here are 13 reasons why no firm should give up on timesheets:

1. Time records are a method of keeping track of costs. While information is entered at the billing rates, discounting it makes it into a cost system.

2. The information can be used for future scheduling; determining if work is done at the proper skill level; to identify who worked on the client and if someone not scheduled worked on the client it could lead to why they did; to determine if work was done that was not part of the prior agreed upon engagement; or to just see how close the actual work matched the budget.

3. Flex time and telecommuting have provided less visibility of staff, less hands on review and discussions and less MBWA (Managing by Wandering Around opportunities). Time sheets provide a means of tracking staff activities.

4. Time records provide a measurement of the type of work that is done in non-productive areas such as answering tax notices, preparing extensions, or redoing work where the accountant didn’t have all the information when they started.

5. Time records are a way to monitor client satisfaction by measuring work done correcting errors or on work that was redone.

6. An example of the benefit of keeping time records was where it was highlighted that a low-level tax department staff person worked on quite a few clients that she had no reason to work on. When we looked into it we found that she was continually asked tax questions by mid level audit staff because they got the answers they needed quickly, while the higher level tax department people pushed these requests aside. This provided valuable information to evaluate the tax staff’s interaction with the audit staff and enabled substantial changes that sped up the turnaround for those questions, and eliminated an oblique bottleneck.

7. Insightful information was found out when it was noticed that a high-level tax manager decided to lump all his tax return review time into one account. Not only was unrecoverable billable amounts lost until he was set straight, but it also showed that he didn’t quite get it.

8. Time summaries also helped us identify considerable time spent on low fixed fee tax returns because the clients decided to engage in hundreds of day trading transactions or invest in hedge funds with 30 page K-1s that year, which we were then able to partially bill for, and better schedule the following year’s tax work.

9. We found that considerable time was spent redoing completed tax returns when amended 1099s were received from the broker. We were able to adjust the timing of the work on those returns in later years.

10. The time run revealed considerable time on extra services such as fixing up erroneous transactions; finding errors in a bank reconciliation and comparing it to the client’s check book entries; helping a client fill out college loan applications; and sometimes a lot of time is spent listening to a client’s ramblings because the staff person didn’t want to be discourteous.

11. The time records helped us realize the extra time spent on a small fixed fee “commodity service” client that would always stop by the office to pick up her payroll and sales tax returns. Since she was in here, she asked if someone could help her by showing her where to sign and who to make out the checks to. Well it seems the person that was usually in the office was a tax partner who would spend forty-five minutes to an hour with her also answering other business questions since she was there already. In one year this unallocated and unscheduled time amounted to sixteen hours. We reviewed this with the client and were able to get some extra billing for it (not too much, but more than we would have had if we didn’t see this when we did the realization schedule). And since we were not able to get compensated for this “hand holding” personalized service going forward, the decision to drop the client was pretty easily made.

12. Client and staff realization can also be charted if you have time records. It helps us with scheduling and maximizing resources by assuring the right level person is working on a client. The realization information also shows us which staff is good at downward delegation, and which managers accept upward delegation from staff. And client fee realization provides the profitability data for each client.

13. Time is our inventory and hours the units. Inventory needs to be controlled. Time sheets seem to be the best way of doing it. If there is something better, then we should look at it. Not having any system or controls is unacceptable and just not good business practice.

We all know most of the things that we see in the time records, but looking at the time run forces us to focus in on it in a manner that we don’t take the time to do when we are in the middle of getting client work out.

About Edward Mendlowitz

Ed Mendlowitz, CPA, ABV, PFS, is a partner in the New Brunswick, N.J., office of WithumSmith+Brown, and has over 40 years of public accounting experience. The author of 16 books, Ed has also written hundreds of articles for business and professional journals and newsletters. He is the contributing editor to the Practitioners Publishing Company’s 1998/1999 706/709 Deskbook, and the AICPA 2004 edition of the Management of an Accounting Practice Handbook and is on the editorial board of Bottom Line/Personal and Tax Hotline financial newsletters.  Ed can be reached at emendlowitz@withum.com