Particularis de Computis et Scripturis. Everything sounds better, if you are an Italian. But whatever you call double-entry bookkeeping, it is not the drab, boring chore that ignorant comedians and arty folk like to make fun of. Okay, perhaps it is a drab and boring chore, but double-entry bookkeeping is also something else. It is a beautifully elegant system for preventing and detecting error in the recording of transactions. And by now, you are either thinking about what you might learn from such a system, or else you probably should not be doing revenue assurance.
Venice in the late 15th Century was the equivalent of modern-day Manhattan. It was a marketplace for the world, replete with the accompanying vice, power, corruption, trade, high finance, big business, fine art, sharp wit and low life. That kind of dynamic environment is a petri dish for invention, promoting new ways of working and interacting. In such places, marriages of convenience occur between clever people and base greed, and the offspring can be prodigious. And so, in 1494, Luca Pacioli wrote Summa de Arithmetica, Geometria, Proportioni et Proportionalità, a kind of mathematical encyclopaedia. Just as in modern New York, where maths whizzes are employed for their financial ingenuity, Pacioli was also interested in more than mere academic reflection about mathematics. So his work contained a 27-page section on Particularis de Computis et Scripturis. This was the first printed treatise about bookkeeping. Pacioli showed how traders could use the double-entry system to maintain their own records. And so, this was the first documented example of the system now used everywhere in the world, by businesses large and small, and by governments and other organizations, to record and track the transactions they engage in. Any system which is used globally, over 500 years after it was first codified, deserves some respect.
To somebody unfamiliar with the system, it may not be clear why the double-entry bookkeeping system became so widespread and popular. Even bookkeepers may not reflect on what makes the system so effective and efficient; it is not necessary to philosophize about a system, in order to use it. But the system was widely copied because it prevents mistakes, detects mistakes, makes it harder to cheat, and makes it harder to steal. These are good things. Again, revenue assurance people should be thinking how they can learn from the example, which is why I suggest that the training of revenue assurance people should include basic training in double-entry bookkeeping. If the principles of double-entry bookkeeping are understood, it will help the RA practitioner to design and maintain other systems which are also meant to prevent and detect error, stop fraud and obstruct crime.
So what makes the double-entry bookkeeeping system such an elegant way to combat mistakes and deceit? I will not give a tutorial about the system here, but let me try to capture some of its beautiful and successful features that revolutionized the keeping of business records. One of its innovations is given in its name. The double entry is a powerful discipline that prevents errors before they can be replicated. Like typing an email address twice, the requirement to record both the debit and credit side of the entry greatly reduces the chance of a simple typographical error destroying the accuracy of the accounts. Anybody who has looked at databases of customer contact information, like names and addresses, will understand how many errors occur because of simple mistakes when capturing and copying data. But the double entry does not just counter error through some brute force doubling of effort during the recording process. At the end of the accounting cycle, it also gives rise to the trial balance, an efficient mechanism that detects those errors which still slipped into the books. The trial balance is like the practice of summing both rows and columns in a spreadsheet. Whether you add across, or add down, everything should eventually add to the same amount. If the differences vary, you know a mistake was made somewhere. And in that way, the trial balance efficiently highlights if errors have been made, forcing people to go back and correct them.
Some may think that old, boring systems like this are unimportant. They may feel that the bookkeepers should do their bookkeeping, but the RA pro has better things to do. I think this system is important for three reasons. Firstly, it is a system. In the modern era, we may be too eager to associate all systems with electronic computing. What makes the system work well remains true whether we continue to use paper records, or whether we computerize the system. We can learn about systems, without thinking in terms of computers and software. Secondly, it is efficient. It delivers all the goals of record keeping whilst also greatly enhancing integrity. The double-entry bookkeeping system was invented for a time when people kept records that were written by hand. They wanted a system that worked well without adding to their burdens. Efficiency is a good thing, no matter what resources we have and how wonderful our modern techno-wizardry might be. We should consider the efficiency of systems, when we design and implement them. Thirdly, people learned the system. They understood it. They still do. Pacioli explained the system in just 27 pages. This shows systems that can be more than something that users use. If understood, the systems can be modified and reapplied elsewhere, to tackle other challenges. It is better that people understand the systems they use, what makes them work well and where their weaknesses are, rather than trusting others to devise systems and to honestly list all the system’s weaknesses.
I have been in reflective mood since Mike Willett interviewed me for the talkRA podcast. We talked about some of the hopes I had for revenue assurance. I mentioned how I was disappointed with progress in sharing information and improving professionalism. Now that I think about it, I realize that most revenue assurance practices have been built on shaky foundations. People appear out of nowhere, claiming to state solid facts, but they say nothing about what went before them. Ideas are presented as obviously true, though mysteriously new – we rarely cite where they came from. To some people, RA only exists from the date they started doing it. They give no credit to innovators before them. They reinvent wheels that were already perfected by others. And so they make mistakes, which could be avoided by a better appreciation of history. Benjamin Franklin often said that ‘experience keeps an expensive school, but some learn at no other.’ It is an irony that RA points out the mistakes of others, but sometimes struggles to learn from its own. It is preferable to learn from the mistakes of our peers, rather than to repeat them.
If RA is to move forward, it also needs to be better at looking backward. Instead of building a leaning tower on inadequate foundations, we need to re-dig the foundations, if we want to build RA into the discipline it really could be. I believe we live in a remarkable time, and we have an extraordinary opportunity. With the growth in volumes of data, and the importance of avoiding error, the world needs the science and discipline of error prevention and detection more than ever before. And it needs it to be in a practical, efficient and elegant form, like Luca Pacioli’s guide to bookkeeping, which was written for merchants to use, not as an abstract academic theory. The history of telecoms gives us a head start, in terms of relevant experience for finding, fixing, and preventing error. And yet, we rarely teach anything to the rest of the world. Retail, finance, and even governments should be looking at what telcos have learned about mistakes that cause waste, inefficiency, and depressed profits. They do not look to telcos, because we have not devised and codified techniques that can be readily presented to them. We are in a dynamic melting pot like 15th Century Venice. But like good merchants, we can be so engrossed in a our day to day business that we fail to see the opportunity to invent and bequeath systems that could be just as important as the system codified by Luca Pacioli. For these reasons, I would like RA to look back, to realize what can be learned from the past, and to recognize the past. This will give us a solid foundation to build upon.
We should learn about double-entry bookkeeping because the story and practice of double-entry bookkeeping can teach us a lot about why humans make mistakes, and how to counter those mistakes. RA did not start in the late 1990’s, or mid 2000’s, or any other date when a now-living ‘expert’ says they first started their work. It did not start in 1494. Mankind has been finding ways to prevent and detect error since ancient times. The only difference now is that the need for such techniques is more acute than ever before. So let us learn from the past, and use that learning to improve the future. Luca Pacioli may not be a famous name, and double-entry bookkeeping may not be a glamorous system. But he did the world a great favour, and we still receive the benefits of using that system. I am idealistic enough to believe that a Luca Pacioli may yet emerge from the ranks of today’s revenue assurance practitioners. We can do the world a favour, but it would help if we also put our house in order, and learn the fundamentals of our craft.