Problem client / How to warn new accountant

Problem client / How to warn new accountant

Didn't find your answer?

We provide bookeeping, payroll and statutatory accounts services for a polish owned Ltd company. The year end is June. In April we prepared draft management accounts for the 9 months period to March. We were provided with monthly staff allowances summaries. This comprised £5 /£10 for overnight stays in UK/abroad. The accounts showed a profit of £300k. This was after taking into account staff allowance of 114k.

When presenting the 9 month accounts amongst other issues, we comented on the fact that we could not identify payments to staff for the allowances and questioned if this was a legitimate expense. It was shown as a creditor and we requested clarification and did not receive this.

In September we started doing the annual June 08 accounts, which are now in the draft stage with more work to do. The staff allowances were now nearly £200k and a draft loss. We identified large round sum payments drawn and paid to the director since we raised the issue in April. We were informed these represented staff allowance payments take by the director direct and distributed to staff.

Alarm bells started to ring and I wrote in October to the directors to again raise my concern that this could not be justified as firstly they had a high staff turnover and requested confirmation they had paid the staff concerned. At a meeting in early December with the 2 directors, I requested some evidence to justify the staff payments. I said it was very clear that no such payments has been made and advised them to reverse the transactions and book the funds withdrawn to the directors loan accounts. There was also a big difference on the net wages control account which we could not reconcile.

I left it to them to get back to me how to proceed and we would not be prepared to but my name to misleading/fraudulent accounts. I anticipated a potential problem brewing and decided not to invoice for the draft June 08 accounts for the moment. We continued to invoice monthly for the bookkeeping and payroll.

We have three invoices outstanding going back to October including the November payroll. This does not including the unbilled time for the June 08 draft accounts and unbilled bookkeeping time this month.

Unless I received an appropriate response, we were planning to resign as accountants in the next few days. Yesterday we received an email from one of the director's to reverse the staff allowances and today we received two letters by email from ‘new’ accountants announcing their appointment and requesting clearance and also from the client terminating our engagement.

The new accountant has assumed we have finalised the June 08 accounts and has requested the normal list of information including TB etc. He has also specifically asked if we are aware of any matters which would give rise to suspicion of money laundering.

Questions
1. How/what do I say to the new accountant, because clearly this needs to be brought to their attention? I don’t want to tip them off. Would it be correct to advise the new accountant to request copy of my recent letters to the client. Should I give them an off the record phone Call? Comments would be appreciated.

2. Do we need to handover the soft copy of the books and records? My feeling is that we should do up to September period where we have been paid for and not for October onwards until our invoices have been settled.

3. Draft accounts to June 2008. New accountant has requested a lot of information for this. Am I correct that these belong to us and not the client and we are under no obligation to pass any information to the new accountants because we have not been paid for these and secondly they are draft and subject to many changes, which we will not be making?

Sorry for the long posting but would appreciate readers help.

Martin

Replies (11)

Please login or register to join the discussion.

avatar
By User deleted
21st Dec 2008 12:15

Thank you all
Your comments are greatly appreciated.

I have just done a report to SOCA for the 2007 accounts. For 2008 as David has mentioned ML not yet an issue.

I spoke to my association (ACCA) on Friday and along with friends, colleagues and all of you have drafted a suitable response which I will be sending this week.

Will not be responding to the new accountant for the moment as we have no authority from our now ex client to communicate with them.

Thank you very much for your help especially David Winch and Fellowcraft.

Thanks (0)
avatar
By User deleted
19th Dec 2008 17:26

ronald angus
Yet again the words "pot" and "kettle" come to mind.

Thanks (0)
avatar
By User deleted
19th Dec 2008 17:09

Hmm
Pembo sounds more like Vito Corleone than an accountant.

He doesn't need to wait on the grapevine - the incoming accountant has already asked for info and clearance.

Martin - are you a member of an RPB? If yes, keep it professional. I suggested providing the 2008 accounts so that you could bill for them. And send the B&R back as you can't enforce a lien over client property. Your own working papers are your own.

And regaridng the bill, yes you must get paid. In my opinion, demanding fees before providing clearance info just isn't the done thing these days. I'm an IP and have dealt with several ACCA complaints, and you dont want to generate a problem out of such a petty matter.

Thanks (0)
avatar
By User deleted
19th Dec 2008 15:30

oh really....!
God we're so nice aren't we.!!.why indulge someone whos trying to pull a flanker with our intuitive professionalism..?..treat it as such...order of events...

1.get paid.

2.release info that's finalised i.e...nothing for 2008...your workings are draft and your property and should not be released.Its not your fault they didn't let you finalise things.Keep your clearance entirely factual and do not indulge in idle speculation regarding the outcome of the "problem".

3.wait until you hear on the grapevine that they've moved to another firm of accountants or as Ronald so eloquently put it catch up with them on the Cook report (is he still alive ??)

4. er thats it

the end.

Thanks (0)
avatar
By rhangus.
19th Dec 2008 13:41

To many errors in this q
If the q is to be taken seriously it has to be checked over for all spelong mis takes.
People who choose to answer can as i have said all along have a lower standard to their comments as they are usually going out of there way to help and dont like silly little irritants telling them off for a silly speling misteak.
So can we pls have good std qs set and then allow those who choose to reply a free hand at answering the way they want.

All for higher stds where appropriate.

To the questioner.
It is ok to write your question all alone.

ps I do hope you manage to recover your fees and then tell next mug how bad the situation actually is. We look fwd to seeing the directors appear on some Cook Report or other.

My comments really are fantastic aren't they?

Thanks (0)
avatar
By User deleted
19th Dec 2008 12:52

er am I missing something..
really don't see what the problem is here...they've done you a favour by the sound of it...let them be a problem for someone else..the primary consideration is to be paid for what you've done....refuse to co-operate with the new accountants until you're brought bang up to date...thereafter keep your responses entirely factual and stick to info up to 30 06 07...its their problem if they end up paying for the same work twice....no offence has been committed yet so forget about ML......

Thanks (0)
avatar
By imain
18th Dec 2008 22:49

Crikey
I don't envy you on this one. If you are a member of any body I would suggest you take adavantage of their ethical/legal helpline before you do anything.

So many issues here, and I think you need to protect yourself before responding to the clearance.

As an aside I think you should be paid for the work done, but it might be worth a write off to get rid of this problem!

All the best

Ian

Thanks (0)
David Winch
By David Winch
18th Dec 2008 23:27

Tipping off

Martin

I am only going to deal with the tipping off point in this response.

You, of course, need written authority from your (ex) client to communicate freely with the new accountant (following normal standard procedure for a change in accountants).

You do not say in your question whether you have made a report either internally to your MLRO or externally to SOCA.

If we assume for the moment that no such report has been made (and you are not aware of any actual or impending money laundering investigation by the authorities), then the answer is very straightforward. You can say what you like - no tipping off offence can be committed.

If a report HAS been made (either internally or externally) then I would not mention that fact to the new accountants. However I would feel free to tell them all about the problems you have had with the client (in much the same way that you have in your question), I just wouldn't say that it had been reported.

If you are a member of a body that meets the criteria of section 333E(5) PoCA 2002 and so is the new accountant then there is no legal impediment to your telling him that a report has been made, see s333C - but I still wouldn't.

You may know that the legislation was amended last year. The old s333 was repealed and replaced by five new sections 333A to E. It sounds complicated but it actually was intended to make life easier.

You can find the new sections here.

I hope that resolves one of your issues!

David

Thanks (0)
avatar
By User deleted
19th Dec 2008 13:47

Don't be overly concerned
Hi Martin

I dont have extensive experience in this area, all I can say is how I would approach it.

First of all, dont be worried. You have not been colluding with the client, you are an external accountant that was appointed to prepare annual accounts from the information provided to you.

Also, and quite rightly, you performed verification work on the records and raised concerns, and as a result you havent submitted accounts you werent happy to put your name to.

I would do the following :-

1. Send the 6/08 accounts stamped "DRAFT" under cover of a letter detailing, briefly, your initial concerns & the fact that they have not been submitted

2. Give clearance & the basic info they require, acs, returns and a TB

3. Bill your time in accordance with your engagement letter (time occupied?)

4. Hand over all books and records

5. Formally disengage yourself

Thanks (0)
David Winch
By David Winch
19th Dec 2008 09:15

Is an ML report required?

Martin

One issue I did not deal with in my earlier post is whether this is a matter about which a money laundering report (or Suspicious Activity Report, or SAR) should be made to your firm's MLRO and by him to SOCA.

Actually I think you could argue this one both ways!

From your post it reads as if you think a report should be made. I do think a report should be made if you have concerns now about expenditures which have been included in the June 2007 accounts (already sent to HMR&C and on the basis of which any Corporation Tax due for that year will now have been paid).

In respect of the year to June 2008 the question in my mind is whether any benefit has been obtained by the client's dishonesty. If no benefit has been obtained then there can be no money laundering and so no report.

On one level a benefit has obviously been obtained in that the directors have taken money out of the company and this 'expenditure' has (initially at least) been falsely described in the company's records. This could be held to be the criminal offence of 'false accounting' (Theft Act 1968). The 'benefit' of the offence is the money drawn by the directors.

However it could be argued, on the other hand, that as the directors have apparently now instructed that these amounts be debited to directors' loan account, no 'benefit' has really been obtained (assuming this does not cause any P11Ds previously filed to become incorrect). Hence no money laundering and no report to SOCA.

But a reply to that might be that once a criminal offence has been committed it cannot be 'uncommitted'. If I steal your wallet today but return it to you tomorrow the stealing of it was still theft.

With regard to tax evasion, no benefit arises from that until the tax falls due for payment. Clearly that has not happened yet with regard to Corporation Tax for the year ended June 2008 and so no money laundering reporting issue has arisen yet in that connection.

So, Martin, if you have no worries about earlier years I think it is very much up to you which view you take on whether an SAR is required.

David

Thanks (0)
avatar
By User deleted
19th Dec 2008 08:06

Formalities
Don't forget to send the client a comprehensive disengagement letter. This is crucial for your own protection at a time like this.

Thanks (0)