Scenario

A client in the leisure sector who offer a membership scheme, had a number of issues that were resulting in less-than-optimal performance, piles of filing and unreconciled invoices, not to mention VAT returns that were well overdue. Overall, their reporting was in a mess, causing staff to become frustrated and de-motivated. It was clear they needed expert help and Carrol Accountants identified a number of areas that required a major overhaul.

Their migration to Xero, a cloud-based accounting software for small and medium-sized businesses, had started but was not functional and their stock migration was completed incorrectly. The bank reconciliations and postings hadn’t been completed since March 2022. Their current software was no longer HMRC compliant, so they were using additional, separate software to facilitate this, with only one staff member being able to access this software.

Paper based systems

The accounts processes were all paper, and not accurately managed. An untrained team had no standard operational procedures written down to fall back on for information. This resulted in a demotivated team who then did not complete their work efficiently.

Their balance sheet was only reconciled at year end, and that had not been conducted for 2021. The only reconciliations completed were written on paper. With several, knee high piles of paper scattered around the office, it was obvious that very little filing had been completed since pre-covid.

No VAT returns

Whilst the Board were getting some management accounts within 21 days, the numbers were not reconciled, and huge estimates were being used due to lack of supporting evidence. As a partially exempt business, there is a requirement to complete a VAT annual exemption form, but this had not been done and the last two quarterly VAT returns had not been submitted.

Payroll reports for Q1 2021 were missing and no formal payments plans were agreed with HMRC.

Missing invoices

We found thousands of pounds posted as money on account, due to many missing invoices. This ended up being double digit thousands of pounds not properly linked to invoices.

Bank access was all locked all except one account with Lloyds, which later was locked too. Other issues we identified were;-

• There were no Petty Cash counts or reconciliations.
• Stock integration ignored web sales, so these were added manually using pieces of paper.
• Till integrations were unreliable.
• There were no regular stock counting systems in place, and stock was only counted once a year.
• Memberships were only reconciled annually.
• No access to any of the bounce back loans.
• There were too many accounting categories used, creating inconsistency coding errors.

 As you can see from all of these issues, there were many problems to overcome, which were all catalogued and highlighted in a 30+ page audit report.

Our solution

We worked with the client and have set up a six- stage month end close procedure, including 45 tasks assigned to the team.

Training for staff

In addition, we created a number of explainer videos on how to carry out certain tasks. This is still a work in progress and more training will be undertaken.

The Balance sheet is now fully reconciled monthly, meaning less estimates are required.

The VAT has been submitted on time from the June 2022 return and continued to be on time since.

Payroll software introduced.

The payroll system is paperless and a well-known software, Moneysoft, has been adopted by the client, meaning no more lost payroll information.

The purchase ledger is much cleaner, and there are no longer huge payments made on account.

Payment plans for all HMRC debt were formally arranged, having managed to achieve one of the longest plan periods of 18 months.

Better reporting

A daily cashflow model has been introduced and continues to be maintained and improved.

Memberships are reconciled back to the ‘JustGo’ database on a monthly basis.

Banks are posted regularly and reconciled every month.

As the team are on top of the above, this identifies missing invoices much quicker, which improves the accuracy of the purchase ledger/Accounts payables.

Looking at the last VAT return, we estimate that documented evidence of in excess of 95% is available online (paperless), which will help speed up any audit process, and keep costs lower.

As the stock integration was not fit for purpose, there are now four physical stock counts completed each year.

The above stock-takes use tried and tested audit methods and spot checks are carried out. This will improve the accuracy of the count.

The team have been trained to reconcile the revenue control accounts, and fix any issues found. This means less time at a more expensive senior level is required.

Xero is now fully functional, and better reporting is in progress.

The client has reduced the number of accounting categories, which helps the team with consistency and improved the learning curve. The client has also managed to get access to both of the bounced bank loans and gain full access to all banks.

Petty Cash is now counted monthly and reconciled.

Less paper, greater efficiencies

Although some paper processes are still useful, the team have adopted the vision for a paperless office. This has created a huge reduction in filing time.

Improved filing systems have been introduced to reduce loss of evidence required at audit.

The whole cash-book process was improved and is now much more efficient saving an estimated 5 hours a week in labour time.

The team are now trained in much more of the essential book-keeping tasks and this means less time is required at a management account level. They have improved their efficiencies, and maintain a high level of accuracy, which again reduces the time required at management accounts level.

We have now achieved the overall goal of closing the month end within 30 days. This deadline was our initial goal and the plan is to now focus on reducing the deadline to 21 days by the of the year. With the continued support from our client and their team, we believe this will be achievable.

We have recommended that a new till system be installed by the client, to improve efficiency when time and funds allow, but for now the team have the time to post the sales manually, and fully reconcile these back to the bankings.

More control accounts have been introduced and training has been provided to ensure that the above manual system is validated monthly.

Overall, we have implemented better ways of working, many new systems, and a focus on best practice, with the full support of the team. They are now motivated to implement these changes and see ongoing benefits.

The client is extremely impressed with the progress we have helped them to achieve.