While accountants always like it when things balance to the penny, we also consider materiality. For example, if your bank reconciliation is off by $20, and the account balance is $600k with millions flowing through it every month, it makes more sense to write off the $20 and move on with your life. I do it all the time. It allows me to focus on more pressing issues.
There are times though, when I see what appears to be an immaterial amount, but something about it bothers me. Between sales, property, and income taxes, I file over 1,000 returns each year. If I chased down every penny nothing would ever get done. However, when reconciling sales tax accounts, it really makes no sense for the general ledger not to tie within pennies of the subsidiary. In most cases the subsidiary is another software program that calculates the taxes on your invoices. In a perfect world, these systems communicate with each other seamlessly. Since our world isn’t perfect, things happen.
Last month my general ledger and subsidiary were off by $17. The tax owed was $80k. But I was bothered. There was no reason for it to be off. I put my detective skills to work, it took about an hour, but I figured out that the software system was incorrectly posting a credit memo; the credit went to a different state than the original debit. Without getting into all the fun details, suffice it to say that this hour spent resulted in a reprogramming of the sales tax program to correct a systematic error that would have continued to occur. If I didn’t investigate $17, the next one could have been thousands, or over time it could have added up to even more than that.
Today I received an email requesting a resale certificate for a 3rd party shipment. The wording of the email was confusing; I read it quickly and thought I knew the answer, was about to hit send, then I felt again like something was wrong. I read the email a few more times, and determined there was a misunderstanding of sales tax law. As part of my investigating, I uncovered another problem. I determined that a sale had been sourced to an incorrect state, no tax had been collected, and it was a material amount. The error I found was only thinly related to the email, but being bothered, I spent the time.
Never feel bad about spending extra time to investigate the details on something that just ‘feels wrong.’ You could uncover larger problems and solve them before they cost your company a lot of money. In communicating these issues internally, you show expertise and leadership. It also showcases your problem-solving and decision-making abilities.
Spending this extra time develops what I like to refer to as ‘the gut instinct.’ It will get faster and easier to glance at something and know that it doesn’t seem right and needs further analysis. Being able to react quickly with gut instincts is a valuable business skill. Never waste an opportunity to practice it – that $17 could change your life!
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