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Write Off Unpaid Supplier Invoices

Good afternoon

I have a number of historic, unpaid supplier invoices (ranging between 6 months and 12 months old)

The suppliers have never chased these invoices and I am certain they never will. I intend to raise internal debit notes to write off the invoice values (and pay back the input tax to HMRC that was previously claimed) but am unsure of the following:

1) Do I have a legal obligation to notify the suppliers that these invoices have never been paid?

2) Can I write them back to cost of sales or do they need to go to a "write off" account?

Thanks

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is there a money laundering

is there a money laundering issue if you write off creditors you know are payable?

There could be a multitude of reasons why payment have never been chased, from them being in dispute and not yet settled to the suppliers accounts really being that bad and them not knowing it's outstanding!

So, a moral if not a legal obligation to contact the supplier.

As for where to write it off...against the same account the original invoice was posted.

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Thanks Carlos

I have searched the money laundering regulations but could not find anything specifically in reltaion to unpaid supplier invoices - Admittedly, I havent spent a large amount of time on this as yet so I may have missed something (would appreciate it if anyone has  link I could follow)

 

providing I'm not in breach of any legalities I will wite back to cost of sales (where originally posted)  and of course repay the input VAT

Thanks

 

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Money Laundering?????
Sorry @Carlos but how is this money laundering? And I can't see how anybody has a moral obligation to inform a supplier that they owe them money. Talking from a commercial perspective who in their right mind would do this?

That said, I would only write off your system once you are i) certain that the invoices are no longer valid or ii) after a certain time, e.g. X years

Under current HMRC guidance, VAT on any purchase invoices that are over 6 months outstanding should be written back on the next VAT return. In recent visits this seems to be something HMRC are very keen on.

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Well, by the same token....

zeofiles wrote:
Sorry @Carlos but how is this money laundering? And I can't see how anybody has a moral obligation to inform a supplier that they owe them money. Talking from a commercial perspective who in their right mind would do this? That said, I would only write off your system once you are i) certain that the invoices are no longer valid or ii) after a certain time, e.g. X years Under current HMRC guidance, VAT on any purchase invoices that are over 6 months outstanding should be written back on the next VAT return. In recent visits this seems to be something HMRC are very keen on.

...you could say that you are under no obligation to settle tax liabilities which HMRC are not aware of, and obviously this would be incorrect.  As far as I am aware, and this is in very simple terms, it is illegal to knowingly make a profit from the mistake of another.  I fail to see how this is any different than trousering the money you get when customers pay you twice in error, basically stealing someone elses money.

Regards

MtF

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Thanks Zeofiles

I intend to write off via internally raised debit notes (posted to the same cost of sales code the original invoices were posted to)

i) I'm certain they are no longer valid

ii) Do you know if there is an "official" time to wait, i.e. substantited by an accounting standard?

As I wish to credit back the VAT to HMRC for all invoices aged above 6 months I was intending to write off invoice at the same time, whilst appreciating that there is a risk, albeit small, that the supplier(s) may chase up these invoices at a later date and then I'll need to reverse the write off, I'm willing to take that risk but want to make sure that I am not in beach of any regulation by writing off the invoices without notifying the suppliers etc

Thanks

 

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Immoral
Surely the question should be why aren't they being paid?

No wonder the economy is in a mess and the public has no confidence in accountants!

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"Immoral" - A bit OTT

Technical questions asked. Told invoices are no longer valid. That's all we need to know. There is no need to go into a lengthy exploration of the circumstances.

There are a multitude of reasons why the invoices may not be being paid. Not paying an invoice is not immoral if they are not valid.

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@paulwakefield: re-read the OP - nowhere does it say invoices are invalid, just that they haven't been and will not be paid!

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See the post above your initial post

It was stated before you posted. I imagine the OP did not think it necessary to go into a long explanation. It's a potentially interesting discussion but not for Any Answers.

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Supplier Statements ?

Do you recieve monthly statements from these suppliers ?

If so, and these invoices are included on the statement then it is likely that their credit control is poor but they will get round to you eventually !

If not, you could be procative / honest and request a statement or e-mail confirmation of any outstanding balance.

How big is the supplier - eg. over the audit threshold ?

If these transactions do not appear on the statements (or you do not receive statements) and the supplier is over the audit threshold, then I would wait 6 months after their financial year end before writing anything off.

 

 

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My point regarding money laundering was that, if you were paid twice by a customer, didn't tell them of that fact and removed that overpayment from their statement...it that not akin to theft and hence money laundering (making a profit from a criminal act etc.etc.)

So, if you don't pay a supplier when you know it's due...essentially, is that not the same thing?

 

And if invoices at no longer valid, then to correct them would not be writing them off, but putting things back to the position they should be.

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criminal act?

suppliers do not get paid sometimes as that is the policy of the client.

They hope the supplier will eventually give up.

I call it stealing but evidently the law does not.

It costs too much to chase amounts less than around £5k so a lot of suppliers just give up and sell to others.

 

 

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Do the right thing

 

Why don't you just do the right thing and pay the invoices unless,of course, they really are invalid because you didn't receive the supplies or they were improperly processed in the first place but not just because they are old. Being old doesn't make the invoices invalid

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Thanks all for your input, please note that the original question is regarding legalities and not each individuals moral stance

I work in an extremely competitive commercial industry and appreciate that some of you don't so I want to avoid any debate on what is the "nice thing to do"

I will leave the moral dilemma to the guys who own the business, I want to be clear that there is no legal obligation to notify the suppliers of the outstanding debt and/or if there are any regulations on timescales to be adhered to when writing off the invoices?

1) The invoices were never disputed and supply has occured so they are valid

2) Have never been chased, either written (statements/chase letters) or by phone

3) Can only assume they have been written off by suppliers as bad debt

4) Suppliers are mixed between under/over audit threshold

 

If I write them off I am content in taking the risk that they may come back in the future and will be paid (e.g. being picked up on by the auditors), I want to avoid breaking any rules in doing so and of course, pay back the VAT thats been reclaimed

Thanks

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6 year rule

In general there is a period of six years after which the debt is 'time barred'. See The Limitations Act 1980 for full details (via google doubtless).

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Just checked the The Limitations Act but could not see any area that states the supplier must be notified of the outstanding debt

 

Whilst there are differing opinions regarding the moral take on this, it appears there is no legislation to prevent the write off from taking place??

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Nothing to do with morals, or business sense..

CIMA_Accountant wrote:

Just checked the The Limitations Act but could not see any area that states the supplier must be notified of the outstanding debt

 

Whilst there are differing opinions regarding the moral take on this, it appears there is no legislation to prevent the write off from taking place??

.. just theft, plain andsimple, risk is neglible to non existent as everyone these days thinks ethics are something that gets in the way of business, and people are so cynical that steraling has become the rule as opposed to the exception.

Regards

MtF

PS Tell yourself whatever helps you sleep at night.

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Come on people
I do worry some times about the lack of 'commerciality' shown on here by some people. And all this stuff about morals is just hog wash.

Most good business owners (and I would venture accountants as well) know how to legally play the system to help meet their own/clients personal targets and goals.

As accountants we do it all the time - how many of you suggest your clients take part of their income as dividends for example??

Why is this morally wrong????

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Good accountants do not play the system...

zeofiles wrote:
I do worry some times about the lack of 'commerciality' shown on here by some people. And all this stuff about morals is just hog wash. Most good business owners (and I would venture accountants as well) know how to legally play the system to help meet their own/clients personal targets and goals. As accountants we do it all the time - how many of you suggest your clients take part of their income as dividends for example?? Why is this morally wrong????

They have a system they are obliged to operate within and do so legally, they do not steal as the OP is unwittingly and worryingly suggesting for a qualified accountant.

MtF

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@cima to repeat my earlier posts, there is no legislation stopping you from doing this. I would suggest you have an internal accounting policy that states the amount of time after which unpaid purchase invoices are written off.

So long as this policy is consistently applied and the directors are confident the invoice is no longer valid, as an auditor I would not have any problem.

Worse case scenario, if the supplier chases maters up in the future you re-enter the original / request a new invoice.

Whilst there used to be the requirement to inform customers if you were writing their debts off, this no longer exists and never (as far as I am aware) existed for purchase invoices.

I would suggest that writing off any invoices no longer valid is a responsible action as it a) allows you to maintain 'clean' supplier ledgers b) ensures that input VAT is repaid when required - there is nothing worse than having to make manual adjustments to your VAT returns for such things.

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Thanks Zeofiles

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Call the supplier

I would call the supplier and ask for a copy statement of accounts.

If your outstanding balance agrees, you should settle the invoice.

If they show you a zero balance then they obviously have no invoice due on their records for you, therefore, put through a supplier "credit note" mirroring the initial transaction to remove from your system.

If you merely clear the balances from your ledgers without checking, you may find in future months that the company improves it's credit control and they will chase you for the outstanding monies which you have already taken back to the P&L. The risk is there, it's whether you want to take it without verifying before reversing the original transaction.

As an aside, we rarely receive statements of accounts or chases from many suppliers, but we continue to pay them as we have received the goods / services and would expect the same from our customers.

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Received goods or services from the supplier?

If you have actually recieved goods or services from these suppliers then technically under IFRS you must provide for them for 6 years on a rolling basis. Presume as a small business IFRS not an issue but key would be to set aside CASH should the supplier eventually chase you.

It is not uncommon for suppliers to come back some time later after they have engaged agents to review the billings on a no win no fee basis.

If it's a genuine error i.e. you have receipted a purchase order or booked goods in in error you should write them back.

 

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You call it stealing but if the law does not then it clearly isnt a criminal act, it would be the price of a phone call to chase the invoices so there is no excuse for the supplier to not chase this debt

 

@james hogan, we will take the risk on the suppliers coming back in future as the invoice values are not substantial, can you point me to the IFRS that states a rolling 6 year basis?

 

Thanks

 

 

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One customer that comes to

One customer that comes to mind is a 60+ million business.

They not only do not pay invoices booked onto their system but simply trash many others as a matter of course, then slow down the supplier with excuses and when threatened, respond with threats to counter sue with spurious charges, what do you do?

If the supplier is well funded, they can take the customer to court, legal fees or up front costs can be many thousands of pounds but, the customer can then delay the judgement (and does) for years.

Faced with the amount of investment of time and money, many suppliers simply throw in the towel.

One hopes that these sort of companies are few and far between but somehow I doubt it.

Faced with a judgement, they will eventually pay up but on balance, they 'win', at least as far as they are concerned.

 

 

 

 

 

 

 

 

 

 

 

 

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My understanding has always been ...

... a creditor has a legal obligation to pay debts he has incurred when due, the onus is not on a supplier to chase debt and there is no legal obligation to issue statements.

As a supplier, beware the 6 year rule - issuing a statement is not enough, you must take the claim to court within 6 years to not be caught out - this is why Barclaycard et al get the CCJ's out pdq but will accept a paltry sum over a long period - they are just safeguarding their claim!

Deliberately not paying debts you know to be due (or deliberately not repaying money you know has been overpaid in error) is a form of fraud.

 

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Old supplier invoices

My suggestion is:

(1) start with the contract between your company and the supplier. This will dictate the legal stance

(2) if (1) above puts you in the clear and you decide to write off, post the write off to admin expenses (even if they were originally posted to cost of sales) if the invoices were first processed in previous financial year(s). The rationale is that the error was an administrative one and this should also help not to distort your current year results re: Gross Profit Margins etc

(3) Consider materiality of the amounts

(4) Consider any commercial implications, current and future, should a supplier discover that they in error did chase for the debt.

Hope this helps.

Thanks - Ashraf

 

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Check your records

I have seen many errors where bank payments were not recorded against the supplier, and even duplicate invoices entered. The only way to be really sure is to get a historical statement of transactions from the supplier and reconcile all the transactions.

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As far as I am aware ...

... for the statute of limitations to apply, the customer must recognise and admit the debt. You could call or write every day for 6 years but if they never admit they owe the money after 6 years it cannot be recovered through law, the only way to ensure it is not statute barred is by getting a CCJ on it. This way the creditor has to show why he thinks it is not due, if he does not the court will make a judgement and this will prove the debt. 

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Is the writing on the wall?

If the company albeit in a very competitive environment relies upon supplier negligence or maladministration to survive then surely it is not long before it will fail.

A pointer when NOT paying supplier bills: make sure creditor is not a scaffolder company.  Scaffolding fixings are quite heavy when removing them from your vehicle.  It has happened to a company I worked for: several fixings were retreived from company vans after passing through windscreens.  Presumably they wanted payment?  As an aside that company was in a very competitive market.  I managed to sell it before it went bust.

In the past with other companies I have managed I have had this supplier situation involving a number of household names.

I used a maxim which worked well for me  - always let others make the mistakes.  My first task would be to repay the VAT (this keeps the HMRC off your back).  Then ask supplier for statement to carry out a reconciliation and give the supplier the opportunity to "realise" the error.  Depending on what resulted from the rec I would either pay up or move the liability out of the Purchase ledger into a "creditors" account.  After a suitable time not earlier than 2 years, I would write this liability back P&L as a financial write back.  It can be important not to distort the gross margin statistics in some companies.

I then checked my systems to see if they were 100%!  After all we don't want to let people get away with paying do we?

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One can only hope...

I am not convinced this company will survive so perhaps the creditors should jump asap!

The first sign of a failing business is when they start to staple the wast A4 sheets for notepaper!

Are you starting to worry?

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....

colingbradley wrote:

I am not convinced this company will survive so perhaps the creditors should jump asap!

The first sign of a failing business is when they start to staple the wast A4 sheets for notepaper!

Are you starting to worry?

 

Naive conclusion, the accumulated value of the invoices equate to less than half a percent of the total ledger, so not worried about the future of the business, just wanted to know if there was any legal obligation to pay them, or can I write them off when they are 6 months overdue without ever being chased or acknowledged by the supplier...The hundreds of other creditors on the ledger are paid on time because they acknowledge the debt...But my original post was not about that!

As no-one can say for certain on here that there is a legal obligation to pay these invoices (and back it up with legislation) I'm beginning to believe that there is no common law to do so....I will gladly welcome anyone that can put me straight on this matter???

 

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@mackthefork - You say its stealing plain and simple...Are you saying it's illegal and if so do you have anything whatsoever to back this up? As previously mentioned, lets separate morals with law/legislation. If I'm under no legal obligation to pay these invoices then I wont, if the law states that I should hand-deliver the cash, plus interest and a box of chocolates to say sorry then I will!

As mentioned before, I appreciate that a lot of users on here do not operate in a commercial environment so do understand the moral stance but my post wasn't intended to get into that discussion

@john woolmore - Just to clarify, My company is not reliant on not paying these invoices, they are on the ledger and I wish to clear them off, the values are not very big relatively speaking...Why did you leave it 2 years? is this through legislation or just good internal practice? Based on your method, there is no  legal responsibility to pay these suppliers as even if they were to send a statement excluding the invoices in question, you would know that it was an admin error as the invoices are valid (just old) and should legally be paid

 

 

 

 

 

 

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re non payment

The reason I use 2 years is that it gives the supplier 2 audits to raise the non payments as an issue.  However I am aware that if they chased for payment after that time but before the Statutary Limitation deadline then I would have to pay it.  Very few did.  I believe the consensus is that there is a legal & contractual responsibility to pay for goods purchased. To obtain goods under the premise that eventually the supplier will not chase for payment must be fraud but that is not the case here is it?  An interesting debate.

It is a fact of modern business life that every task is costed for value and, sadly, sometimes it is not worth the cost to chase for debts below a certain value.  A tactic I used in one company to get around this was that the minimum credit account invoice was £500.  Less than that and it was proforma.  But that is another subject.

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Okay......

CIMA_Accountant wrote:

@mackthefork - You say its stealing plain and simple...Are you saying it's illegal and if so do you have anything whatsoever to back this up? As previously mentioned, lets separate morals with law/legislation. If I'm under no legal obligation to pay these invoices then I wont, if the law states that I should hand-deliver the cash, plus interest and a box of chocolates to say sorry then I will!

As mentioned before, I appreciate that a lot of users on here do not operate in a commercial environment so do understand the moral stance but my post wasn't intended to get into that discussion

@john woolmore - Just to clarify, My company is not reliant on not paying these invoices, they are on the ledger and I wish to clear them off, the values are not very big relatively speaking...Why did you leave it 2 years? is this through legislation or just good internal practice? Based on your method, there is no  legal responsibility to pay these suppliers as even if they were to send a statement excluding the invoices in question, you would know that it was an admin error as the invoices are valid (just old) and should legally be paid

 

This is going to be my last post in this thread, I am slightly miffed about the implication that not being an unscrupulous bounder makes me uncommercial, I think if I was in fact 'not commercial' I would have been found out years ago.  As is I believe I am in fact very astute and commercially minded. 

It has already been said many times in this thread that there is an obligation to pay, in fact a legal one, the point is there is an act of fraud taking place when these invoices (if legitimate) are written from your clients ledger, I would suggest that this would be both against your professional bodys code of ethics, and also against the law.

Less importantly, you are highly unlikely to ever face any consequences for this, as everyone tends to turns a blind eye to this kind of thing these days, this does not mean that everyone who pays their bills is a naive idiot, do you see why?

Regards

MtF

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FRAUD ACT 2006/ Cima ethics

FRAUD ACT 2006

....THEFT ACT 1968

 

THE FRAUD ACT 2006 MAY GIVE YOU CAUSE FOR THOUGHT.

also the CIMA code of ethics may concentrate your mind

 

it seems that you have the ****intention***  to avoid payment until pressed and reminded to do so..perhaps relying on the supplier to give up chasing due to their own costs of doing so.

This is FRAUD.

Would you promote this as a Baldrick Black Adder cunning plan to get services on the cheap?

IF CIMA forgot to chase and collect their fees , or fail to invoice you for  a seminar attended- but not invoiced- would your attitude differ?

 

 

 

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When you buy something ...

... you make a legally binding contract.

The invoice evidences this, and if you do not dispute the charges within a reasonable time frame (30 days max unless a long term contract, then it could be longer) you must pay within the contract terms.

By entering the contract you have agreed to pay, the supplier has no legal obligation to chase you, you have a legal obligation to pay within the credit terms agreed in the contract.

Just because the supplier may have weak systems, incompetent staff etc, to not pay those debts is theft pure and simple. If you entered the contract with no intention of paying it is fraud.

Having just been on a seminar looking at credit control, this was looked at from the other side, where many suppliers stupidly are willing to write off a small percentage of ledger debt as it is less hassle than chasing. This is foolish, especially in the current economic climate as writing of 0.5% of your ledger could mean the difference between profit and loss. Turning that round, to a customer writing off 0.5% of the bought ledger could mean the same. 

You have an obligation under law to pay a debt that you know to be due, and if any doubt exists, as my colleagues above have said, you have a legal obligation to ask for a breakdown of the account to reconcile.

 

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To get back to the OP ...

... two questions were asked:

1) You have a legal responsibility to pay a valid debt, if you are (genuinely) unsure you should ask for a detailed statement of your account and reconcile it.

2) Depends on the above, if it is a valid invoice, pay it, if not write back to cost of sales, or if you think that would distort things, to a seperate account

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CIMA Code of Ethics

All CIMA members are obliged to uphold the Code of Ethics, based on IFAC's Code.  www.cimaglobal.com/ethics.   It is their responsibility to be guided by the Principles within the Code.  Any complaints that would be made against them would be guided by the Code http://www.cimaglobal.com/Professional-ethics/Conduct/ breaches of which would lead to discplinary action. 

CIMA promotes the highest ethical and business standards and enourages members to be good and responsible professionals  Good ethical behaviour may be above that required by law.

"The principle of Integrity (110) - imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness".

Those who wish to retain their chartered status should consider their obligations in order to uphold their professional standing at all times in the wider public interest.

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@CIMA_Accountant: I'm really not sure why you bothered posting your query on here as you clealry don't want to listen to any answer telling you that your proposed course of action is (a) definitely unethical and (b) almost certainly illegal (fraud and/or theft).

Why don't you carry out your proposed action and then post your full details on here so that you can be reported CIMA and/or the police? That way we can all find out whether you should be concerned about ethics!

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God, talk about sanctimonious farts.

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You call it sanctimonious ...

... we call it theft!

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Thanks all for your input...Lots of interesting view points! 

 

 

 

 

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Heartening

I am heartened to read that so many (obviously) commercially involved businessmen / accountants frown on the non-payment of debts, however small.

IMO the advice of John Woolmore was particularly astute and offers the OP what he clearly wants (not to have to honour a contract) without the possibility of being labelled 'dishonest' or 'immoral'.

 

 

 

 

 

 

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