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CPA Now
Apr 22, 2020

Don’t Let “Broken Windows” Tarnish Your Management Reports

James J. Caruso, CPA, CGMABy James J. Caruso, CPA, CGMA


Corporate Finance blog iconThe “broken windows” crimefighting theory developed by criminologists James Q. Wilson and George Kelling proposes that if broken windows in an abandoned building are left unrepaired, it leaves the impression that nobody cares or is accountable. In this environment, even otherwise law-abiding citizens feel free to throw rocks and break even more windows in the building. The mischief then expands in severity and location: from broken windows, to vandalism, to graffiti at the building; then it moves across the street, down the block, and elsewhere in the neighborhood; which is followed by community disorder and crime. Civil disorder leads to more serious crimes, as pride in the community deteriorates and is replaced first by apathy then by anarchy. Fixing broken windows, though not a law-enforcement action, nonetheless helps to establish a sense of pride, safety, and order, preventing more serious infractions – as does targeting relatively minor crimes such as vandalism, public drinking, and panhandling.

The crime-fighting theory is not without its critics, but adopting a similar philosophy for internal management reporting has undeniable benefit. When I review an internal reporting package, and see a difference of “1” between “total assets” and “total liabilities and equity” on the balance sheet, I know it is only due to spreadsheet rounding. Is it a waste of my time and the preparer’s time if I send it back to be fixed? In my opinion, no.

Balancing a balance sheet is a fundamental concept. Distributing a balance sheet that does not balance, even if it is readily apparent that it is a small rounding difference, is simply unprofessional. It raises questions about credibility and quality of the entire reporting package. Like fixing the broken window, taking time to fix a small error creates a culture of quality, attention to detail, and pride in work product within the finance team. My team knows I look at everything in detail, which instills further care and discipline. People are more likely to review their own work and get it right the first time, because they know I am going to find the slightest error and they will have to deal with rework later.

Yes, I realize spreadsheet rounding errors cannot be completely avoided. I am not talking about the column of numbers that is off by “1” in footing or cross-footing. (At the bottom of all internal financial reports should be the caveat, “Spreadsheet rounding errors may exist.”) At issue are obvious errors that are immediately apparent to the reader. A balance sheet that doesn’t balance is just one example. Any financial data element that appears in more than one place in a reporting package should be exactly the same every place that it appears. For example, there can be only one “official” net income figure for the month; the reader should not have to choose which of two different numbers in two different places in the reporting package is actually correct - even if they only differ by a rounding difference of “1.” This is not just about numerical differences either: spelling errors, inconsistent formats, line item descriptions and verb tenses, etc., also get sent back to the preparer.

This discipline was ingrained in me by my years in public accounting, where externally published (audited, reviewed, or compiled) financial statements, and other client deliverables, followed consistent formats and style guides. No rounding differences were tolerated, whether between individual financial statements or in the footing/cross-footing of columns and rows. While the latter may deserve latitude in internal reporting and is unavoidable even in reports generated by enterprise accounting systems, the former deserves no compromise, even if your “clients” are other members of management or your board of directors.

This is not micromanagement. It is simply the reality that small errors, if ignored, lead to larger ones. By fixing small errors, you foster a culture of quality, pride, discipline, professionalism, and attention to detail. It’s the broken windows theory of management reporting.


James J. Caruso, CPA, CGMA, is CFO of Simplura Health Group in Valley Stream, N.Y. He can be reached at jcaruso@simplura.com.


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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.