Scope creep in accounting firms, counted without timesheets

Why hours are not needed to see it

Hours measure effort. Units measure what was promised against what was delivered, and that is the conversation the firm will eventually have with the client anyway. A client does not see the forty minutes a preparer spent on a state apportionment. The client does see that the firm now files three state returns where it filed one, and that the fee did not move.

The arithmetic is simple. Divide the fee by the units it bought when it was set, then by the units delivered last season. Illustrative example: a client priced at $6,000 for three returns — two entities and one state. Last season the firm filed seven. The fee per return fell from $2,000 to about $857, and nobody decided that. Replace the numbers with the firm’s own.

Where the firm does keep time, it belongs in the analysis too. It just is not the entry ticket. The units version has one advantage hours lack: it produces the exact sentence a partner needs for the renewal letter.

Billing holds the second trace. Every discount, write-down and credit memo is a place where the firm already conceded that the fee and the work did not match — after the work was done, and with no note saying why unless someone wrote one. Pull a year of adjustments by client and reason. A firm that cannot say why an invoice was reduced has found where the conversation about scope is being skipped.

The worksheet: letter scope against delivered units

Start with the twenty largest fixed-fee clients, because that is where one unpriced unit costs the most. One row per client, client IDs instead of names:

• Annual fee now, and the year it was last changed.
• Units the letter priced: entities, federal returns, state returns, K-1s expected, months of bookkeeping, and whether notices are included.
• Units delivered last season, from the tax software and the practice-management system: returns filed by entity and state, K-1s entered, notices logged, cleanup months, portal or inbox requests.
• Billing adjustments: discounts, write-downs, credit memos and invoices reduced after a client pushed back, from the billing report.
• Fee per unit when set, fee per unit now.

Sort by the drop in fee per unit. The top of that list is the repricing conversation for this fall; the bottom is the list of clients the letter still describes accurately. If the letter for a client lists no units at all, that blank is the first finding — it means the firm cannot say what the fee covers, so nothing can be out of scope.

Where unpriced work gets in: four hand-offs to watch

Scope creep does not arrive as one decision. It arrives through hand-offs where the person receiving the work is not the person who prices it:

• The phone call or email routed straight to the preparer who knows the client, who answers it because answering is faster than asking whether it is billable.
• The notice the client forwards with “can you take a look,” worked the same week and logged nowhere.
• The new entity or state discovered during preparation rather than at engagement, when the fee was already set.
• The cleanup found after a monthly bookkeeping or CAS fee started — priced as if the file were clean.

Each entry point needs one route: to the person who prices, before the work starts. A preparer who answers a quick question is not the problem; a firm with no route for that question is. The route does not need a timesheet either. A one-line request log — client ID, date, request type, priced or not — kept in the practice-management system or a shared sheet turns the “quick questions” into a count by the end of the first month, and the count tells the partners which clients to call before renewal.

Which client questions should an accounting firm charge for?

The ones whose answer is new work: research, a calculation, a written position the client will act on, or a change to what the firm files. Questions about work the letter already priced — where a return stands, which document is missing, what a line on a finished return means — are part of that fee, and a firm that bills them gives clients a reason to stop asking the questions that keep the file accurate.

The line matters more when the answer goes out in writing. Treasury’s Circular 230 rule on written advice, 31 CFR 10.37, applies to written advice on federal tax matters, “including by means of electronic communication”: the practitioner must base it on reasonable factual and legal assumptions, reasonably consider all relevant facts and circumstances, and relate applicable law and authorities to the facts. An emailed answer to a client’s tax question can fall under that rule whether or not anyone priced it, and the rule’s standard of review weighs the scope of the engagement and the type and specificity of the advice the client sought. Not legal advice.

Write the line into the engagement letter as two short lists, and send anything on the second list to the person who prices before the answer goes out:

• Included in the fee: the status of work in progress, document requests, scheduling, and explaining a return or report the firm already delivered.
• Priced before the answer: a projection before a sale, a purchase, a move or a hire; a question about a new entity or state that would add a filing; a written answer the client will rely on for a decision.

One rule: priced in writing before the work starts

The fix for scope creep without timesheets is the same as with them: the price is set before the work, and the exceptions are visible. In practice that takes five pieces, each of them one page or less:

• A scope list in every letter, in units: entities, returns by jurisdiction, K-1s, months, and whether notices are included.
• An out-of-scope menu with prices or a stated rate method — a notice response, an added state, an amended return, a cleanup month — so the conversation is “that is on the menu at this price,” not a negotiation.
• A short addendum, acknowledged by the client before the work starts, for anything on the menu.
• A reason code when work is done without one: deadline, partner courtesy, relationship, missed. Courtesy is a legitimate choice; the code makes it a choice someone made.
• An annual repricing pass from the worksheet before renewal letters go out.

October to January is when firms send fee changes and next year’s letters. A repricing pass done now uses this season’s units, while they are still in the system and easy to export.

When not to hire anyone for this

If the worksheet shows a few clients whose units grew and the letters already list units, nobody needs a consultant. Reprice those clients, add the menu to the letter, route quick questions to the person who prices, and rerun the sheet after next season. A practice-management vendor may be able to report units by client once the fields exist.

If the list is long, or the records cannot produce units by client at all, the Revenue Review is a read-only engagement of two weeks. It reads counts, dates and stages from the firm’s own practice-management, portal and billing exports, with client IDs rather than names: no returns, no workpapers, no client tax information. The written report prices each leak and sets out a 90-day plan; any build afterward is scoped and priced separately.

Lumina is not a CPA firm and gives no tax, legal or ethics advice. Below about $1 million a year in fees, the Review’s price does not fit the arithmetic, and the free 20-minute call says so plainly.