As far as we’ve come as a profession, we still encounter CPAs who struggle to bill for services delivered (and/or time incurred) beyond the scope of their original engagement. And, young people are not being taught the valuable skill of managing scope and resetting expectations with overruns, so the issue perpetuates. Even worse yet, your bright, smart young people lose faith in their leadership who seem to give away work or allow engagements that aren’t profitable to persist.

It may seem that the heart of busy season is not a good time to deal with this issue, however, there are three simple strategies you can employ right now, in the heat of your many engagements with clients. Then, after busy season, consider employing two additional proactive ideas I’ll include in this blog to make next year’s busy season even better.

During your current engagements:

  1. Take a few minutes at the beginning of the engagement to identify anything new that has arisen or things that have changed since you originally scoped the engagement. Review work papers to see what notes there are on previous out of scope items. Ask your client contacts and your engagement team members what they know to be new, anything that has changed or special information or circumstances that you should be aware of. If the information you learn leads you to anticipate potential scope changes, then you can issue an engagement letter accordingly.

    If you learn anything that will lead you to think you’ll be spending extra time or something is beyond the scope of the original engagement, either call or meet with the client to discuss this in advance of the engagement commencing. Then, follow up in writing with a scope document or new engagement letter so that you carefully manage expectations and minimize surprises when it comes time to send your client an invoice that reflects that actual scope of the work that will be performed.
  2. Teach your staff how and when to let you know that they are going beyond the time or services scoped. This will require that you are diligent about providing the budget when making the assignment to staff for the services they are assigned to deliver and what the true estimated time should be. Your staff will need permission to let you know if they don’t think the budget is realistic, and why. Then, ask your staff to let you or the engagement manager know the moment they anticipate an overrun - in advance of delivering the out-of-scope services. This will allow you to make a judgment call at that time if the time is due to a staff learning investment, staff changes or other circumstances internal to your firm that should not be passed on to your client or if you should proactively call the client to let them know that you have identified necessary activities that were not scoped. Your goal is to manage client expectations and to either gain approval to move forward with the out-of-scope services and additional billings, or have the client manage the additional work identified. Your clients will appreciate the phone call at a minimum, and you’ll be surprised how many of your clients say, “Of course (or at least “I understand”) you should bill for those additional activities.”
  3. If your engagement team is not able to get out in front of the issue and you discover out-of-scope activities when reviewing WIP, pick up the phone to let your client know. While this is the least ideal scenario, it is better to discuss this with your client ahead and advise them on why you feel the items are billable. This gives your client a chance to argue their point of view and for you to negotiate a fair solution – which should be for you to recover some of the out-of-scope services. This is a far preferable method than surprise billing with the hope that they don’t call you or not billing them at all and leaving money on the table that they may have been willing to pay. Again, you will likely be surprised at how many of your clients will be accepting of the additional fees, and you won’t know if you don’t ask!

    When this scenario occurs, it is important to document the cause of the overrun and make sure that information is scanned into the workpapers so that you (or another person managing the same job next year) can see the information and issue an engagement letter upfront with a fee increase that considers the additional services you encountered.

  4. Two proactive ideas to consider post-busy season:

  5. Conduct an engagement review for your larger corporate tax clients or audit engagements to determine how you did against budget, where you were over and why, and what should be communicated to the client to share your perspective and set expectations for the next engagement. This can be an educational process for both your clients and staff and provide you the opportunity to document what you learned in a recap to your client and put in your client files so you remember to change your services or budget (or both) going forward. You can use a simple “Keep, Stop, Start” approach by asking these three questions:
    1. What should we keep doing that adds value to our client and that they appreciate?
    2. What should we stop doing that is not valuable, takes extra time, they don’t need, etc.?
    3. What should we start doing that we aren’t doing now? (i.e. having them take back some of the work, offering training of their staff, etc.)
  6. Review your engagement letter and scope change process to ensure you, your staff and your clients are clear about the steps to take when something new is identified that should fall under a new service agreement or when you are going to incur additional time that should be billed separate from the original engagement. Often, you’ll find that your process isn’t documented clearly or scope is not specific enough (bullets of what is IN SCOPE and OUT of SCOPE) in engagement letters. And, as you bring in new staff or as staff members are promoted, they often don’t know what is expected or the protocol to follow. Include it in your new employee orientation and new engagement manager training. It’s also a good reminder for all to review this process both after busy season and during your busy-season kick-off meetings!

These ideas do require investing some of your precious time, but the likelihood that you will turn that time into cash is high when you recover fees for services you previously would have written off.

What strategies have you employed to manage scope changes and bill for additional time spent during engagements? What action can you take today to ensure you are getting paid for your services? Please post a comment and share!