How do I tell whether my books are actually being kept correctly, and what are the warning signs that my bookkeeper is not doing the work properly?

Why is a sensible-looking profit not proof that the books are right?

Neglected books still produce a profit figure, and a missing, doubled or misfiled transaction need not make that figure look odd; only a comparison with figures from outside the books shows it. The real test is whether the balances agree with figures from outside the books. Get those figures yourself, through your own online access or statements sent to you, never as copies forwarded by the bookkeeper: a check that relies on the work it checks proves nothing. If you lack your own access to any business bank or card account, get it from the bank.

Which checks can you run yourself, and in what order?

IRS Publication 583 advises reconciling the business checking account each month so the books reflect all bank charges and the correct balance. Intuit's help page Reconcile an account in QuickBooks Online describes matching recorded transactions with bank and credit card statements until the difference is 0.00. You need not redo that work, only test it against statements you hold. Run this review on each monthly package, highest-signal check first:

The IRS page About Form 941 says employers use the form to report federal income, social security and Medicare taxes withheld from employees' paychecks, and the employer's share of social security and Medicare taxes. The withheld taxes come out of employees' pay, so in the books they are part of gross wages, not the business's own payroll tax; if the books' payroll-tax figure is larger than the employer taxes on the payroll provider's quarterly report, ask the bookkeeper to show what else it contains. Match the tie to the books' basis: IRS Publication 538 says the accrual method deducts expenses in the tax year incurred, regardless of when payment is made, so accrual wage expense can differ from wages paid by the change in unpaid wages over the period; under the cash method, which generally deducts expenses in the year paid, the two should agree.

The IRS's Business Tax Account shows payment history, but only for the filers its page lists: a sole proprietor also needs an EIN, and the account isn't yet available for LLCs that file as sole proprietors with Schedule C or Schedule F. If you cannot open one, raise the recorded tax payments with your tax preparer at the annual visit described below.

An outgoing transaction you do not recognize, or a recorded tax payment missing from the IRS history, is outside this review: take it to your bank and your tax preparer, and see the separate question on suspected theft.

Which account conditions show the books are not being kept?

Each of these is a signal because of what it says about the transactions behind it:

• Balances that do not tie. Beyond short-lived timing items and a bank error, book cash can differ from the bank only through missing, doubled or wrongly recorded transactions or balances, and many of those also misstate income or expenses.
• Old uncleared items. Entries that stay uncleared for months are entries the bank has not seen, and each needs a reason, such as a check the payee has not cashed.
• Growing holding balances. Intuit's help page Record and make bank deposits in QuickBooks Online says the invoice payments and sales receipts you combine into a deposit sit in Undeposited Funds until the deposit is recorded, so its balance should be only recent receipts not yet banked; a balance that keeps growing means receipts recorded in the books have not been matched to the bank, for example because the money was not deposited or the deposit was entered a second time. An item left in an uncategorized or suspense account is not in the account it belongs to, so the reports that use that account are wrong.
• Reconciliations falling behind. A month nobody has compared with the bank can hide any of the errors above.
• Delivered months changing. Intuit's help page Fix beginning balance issues when reconciling in QuickBooks Online traces a past reconciliation that stops matching to a change on a transaction since then, such as a reconciled transaction being edited, deleted, voided, moved or unreconciled. A change that comes with an explanation still means the delivered month was wrong, so run it through the one-off-or-pattern test below; a change with no explanation is a signal in itself.

Adjusting entries are not a warning sign in themselves. IRS Publication 538 says that under the accrual method you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them. Accrual books therefore need period-end entries for items such as unpaid bills and unbilled work. The signal is an adjustment nobody can explain or support.

How are warning signs in the work different from warning signs in the person?

Work signals are facts about the books, such as a balance that does not tie. Answer each with the observation and a request for the correction and its cause, using the sequence at the end. Conduct signals are about how the bookkeeper deals with you:

• Reluctance to give you access to the file or the reports behind the package
• Deliverables that arrive late, partly or not at all
• Adjustments nobody explains
• A balance the bookkeeper cannot or will not explain

None of these proves the books are wrong, but each withholds the evidence you need to know. Do not argue about attitude or intent: put a request for the specific access or document in writing, with a date, and treat non-delivery as the finding. First check the engagement letter, because work never agreed, such as reconciling a card account, cannot be a failure to perform, though someone still has to do it.

What evidence of completed work can you ask for, and what makes an answer adequate?

You can ask for the evidence behind any figure in your books. Three requests settle most doubts:

• A reconciliation report for each bank and card account. Intuit's Reconcile an account in QuickBooks Online page says the software saves a reconciliation report after each reconciliation. An adequate one covers the latest statement period, uses a statement balance equal to yours, shows a difference of zero and dates each uncleared item.
• A list of what sits in each holding or uncategorized account. An adequate list gives each item, its date and when it will be cleared.
• An explanation of each adjustment or change to a delivered month. An adequate one says what changed, why, the amount and the document or calculation behind it; IRS Publication 583 lists supporting documents such as sales slips, paid bills, invoices, receipts, deposit slips and canceled checks.

An answer counts only if you can check it against something you hold: "it's all reconciled" without the report is not an answer, and neither is a report whose statement balance differs from yours.

How do you tell a one-off error from work not being done?

Ask of every error what caused it and whether that cause could have touched other transactions. The PCAOB's AS 2810, a public-company audit standard, tells auditors they cannot assume an error is an isolated occurrence. The same discipline sorts what an owner finds:

A skipped step matters even in a month where no error has surfaced, because an unreconciled month can hide any of the errors above.

What changes when an outside firm keeps the books on its own subscription?

You see delivered reports, not the ledger. Checks 1, 3, 5 and 6 still work from the delivered balance sheet and profit and loss plus your own statements (checks 1 and 3 only for a statement that closes on the balance sheet date), and check 4 works where holding balances appear on their own lines. Check 5 needs last month's figures as the books show them now: ask for each package to show the prior month beside the current one, and compare that column with the package you received last month. You lose the reconciliation detail, the contents of holding accounts and the history of changes, so ask the firm for read-only access to the file, or at least the monthly reconciliation reports and a list of changes to delivered months: without them you can see that a balance fails to tie, but not why. In QuickBooks Online, Intuit's Fix beginning balance issues page says you need admin access to view and edit reconciliations, so read-only access will not show them there; ask for the monthly reconciliation reports as delivered documents whatever access you are given. The same page's Reconcile Discrepancy Report, used when a reconciled account's beginning balance is off, lists for that account what changed, how it affected the balance, and who changed it and when; for changes to other accounts in a delivered month, still ask for a list.

How can the annual tax preparer's visit serve as a check?

Treasury's rules for practice before the IRS, at 31 CFR 10.34, say a practitioner preparing a return generally may rely in good faith, without verification, on information the client furnishes. The same rule says the practitioner may not ignore the implications of information furnished or actually known, and must make reasonable inquiries if it appears incorrect, inconsistent with an important fact or another factual assumption, or incomplete. So a filed return does not show that the books were right, but the preparer's inquiries are an outside look you already pay for. When the return is delivered, ask which figures from the books they queried or adjusted, and give that list to the bookkeeper to explain. That question fits the preparer's existing work; asking them to review the bookkeeping would be a separate engagement.

Which conclusions need an independent accountant, and what should trigger one?

Your own checks show whether balances tie to outside evidence, whether work is current and whether delivered months stay put. They cannot show whether income and expenses sit in the right categories and periods, whether accruals, depreciation and other non-cash entries are right, whether the statements are reliable enough for a lender or buyer, or whether anything was deliberate. Bring in an accountant with no tie to the bookkeeper or their firm when any of these happens:

• A balance still does not tie after the bookkeeper's answer.
• The same kind of error returns after correction.
• A delivered month changes without an explanation you can check.
• Evidence you asked for in writing, with a date, does not arrive.
• You are about to rely on the statements for a loan, a sale or an investor.

You can hire one for exactly the work you need, such as reconciling named accounts for named months to statements you supply yourself and listing every difference. AT 201, an attestation standard of the Public Company Accounting Oversight Board, describes an agreed-upon procedures engagement as producing a report of findings based on specific procedures, with no opinion or negative assurance, and says the parties who specify the procedures assume the risk that they are insufficient. Its report is restricted to the parties who agreed the procedures and gives no opinion, so it will not tell a lender, buyer or investor that your statements are reliable; where one of them will rely on the statements, ask them what kind of accountant's report they require before you hire. The findings answer the questions you asked and no others, so choose procedures that match your concern. Ask any accountant you hire for a private business which professional standards the engagement will follow and what the report will and will not say.

How should you raise a concern so it gets a checkable answer?

Take these steps in order:

1. Run the check yourself and write the observation as facts: the account, the date, the figure in the books, the figure on your statement and the difference.
2. Send it in writing as a question that names the document that would settle it and a date, not as a conclusion. For example: "The June 30 balance sheet shows checking at $48,210.00, and my bank statement closing June 30 shows $51,960.00. Please send the June reconciliation report for this account, showing the items that make up the $3,750.00 difference, by July 15."
3. Judge the reply against what you hold. It closes the concern when the report's statement balance equals yours, each item in the difference has a date and a cause, any correction has been made, and the bookkeeper says whether the same cause touched other transactions or months.
4. Confirm it the next month. The uncleared items should appear on the July statement, the correction should still be in place and the same check should pass.
5. Escalate only on evidence. If the document does not arrive or does not tie, or the problem returns, take your notes to an independent accountant rather than making an accusation.