Theft of takings

Theft of takings

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I've recently come across a job where a cash business was subject to employee fraud. Apparently a former employee missappropriated an estimated £100k of takings. The matter was investigated substantially by the police however no prosecutions were made due to lack of evidence.

HMRC levied VAT on the missing takings and are pursuing.

Anybody else heard of a similar situation?

Fellowcraft

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David Winch
By David Winch
25th Jul 2008 17:18

To sum up

Fellowcraft

To answer your question, it appears that everyone here would accept that the stolen / unrecorded takings are vatable, notwithstanding that that rubs salt in the wound!

The issue is, can you obtain any reduction in the figure?

Good luck!

David

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By neileg
25th Jul 2008 16:21

Prosecuted or not
It was quite a while ago now, but I came across a case where the employee had been successfully prosecuted. Still didn't change the VAT status though.

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By AnonymousUser
25th Jul 2008 15:01

Sadly they do not even with CCTV
I've a family member who's a manager with a retail chain and even with CCTV evidence police/CPS will not necessarily prosecute. All the company can do is sack the member of staff concerned. No point in pursuing a civil case as the money will have gone.

Obviously here we are talking a very large sum and it does beg the question why it was allowed to continue for so long.

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David Winch
By David Winch
25th Jul 2008 13:07

Under-declared takings

It seems to me that HMR&C are saying that takings have been under-declared for VAT purposes. They are not much interested in the detail of how and why that occurred or who was responsible.

So is it not a bog-standard case? In effect the suggestion is cash from takings has been withdrawn as drawings or whatever.

You will be looking at how HMR&C arrived at an estimate of £100K under-declared and whether that is a reasonable estimate.

(Presumably if the CCTV evidence proved an employee was taking cash the police / CPS would have prosecuted even if they were not able to give a reliable figure for the amount stolen. It is the theft of cash they would have to prove - not the amount of the theft.)

Or am I missing something?

David

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By User deleted
25th Jul 2008 12:53

Guys
Please can we stick to the point. There is no authority on gods green earth that would criticise the external accountant unless it was blatantly obvious.

Correct, the takings were not counted on the VAT return and were not on the till roll as the cash had bypassed the till. Accounting systems were fine. HMRC estimated missing takings at £100k.

Although it was proven on CCTV that the employee had stolen cash, HMRC's stance was that they could not assume that the employee had stolen £100k of cash and had to assume the proprietor took it, which under the circumstances is logical.

Just wondered whether anyone else has had a similar scenario?

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By User deleted
25th Jul 2008 11:46

criminal
Blimey David. We spend half our time trying to convince clients that its not our fault their tax bill has doubled and you want to encourage them ! Certainly prima facie no duty of care as to how clients choose to run their businesses unless an audit and glaring internal control weaknesses were either not spotted (bad) or spotted but not advised to the client( very bad) and such weaknesses could be linked to the theft.

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David Winch
By David Winch
25th Jul 2008 16:23

Investigation and prosecution

Anon, you have a point.

There are 43 police forces in the UK. They each face more allegations of crimes than they have resources to investigate. So they prioritise. Different forces may have a different balance of allegations v resources in relation to different categories of crime (you don't ask a traffic cop to investigate a fraud or a murder). However there are some common trends. Obviously the targets which all 43 forces are set by central government have affected their priorities.

Naturally if the police are presented with strong evidence by a complainant they are, other things being equal, more likely to investigate an offence than if the complainant cannot produce strong evidence.

Crimes involving breach of trust, such as theft by an employee, are more likely to be investigated than the same theft by an outsider, other things being equal. (Of course if an outsider employs or threatens violence in the course of the theft then that has a significant impact on the likelihood of a police investigation.)

A factor to be considered may be the impact of the theft on the victim. (The case mentioned by Anon may have 'scored' particularly low here!) Another may be whether the victim had taken sensible precautions to deter or detect such crime.

It seems in Fellowcraft's case (unlike the retail chain) the theft was investigated.

The next stage, at or near the completion of the investigation, is a decision as to whether to prosecute. The CPS will only very exceptionally prosecute where they rate the chances of obtaining a conviction (whether after trial or on a guilty plea) as less than 50/50.

In this case it appears that a decision was made not to prosecute.

This leads me to wonder whether the CCTV evidence was perhaps not as good as the original poster has been led to believe. To put this another way, the CCTV did not 'prove the employee had stolen cash'.

In any event I think it would be the case that the police / CPS would expect the investigation to turn up some form of corroborative evidence where an employee had stolen a substantial amount of cash. This might be direct evidence (e.g. a witness who saw some stealing taking place) or circumstantial evidence (e.g. some evidence of the employee having expenditure inconsistent with his legitimate income, or some evidence that losses occurred only on the days that particular employee was at work, or some evidence that takings were lower for no legitimate reason during the suspect's period of employment - perhaps even a markup exercise). However with circumstantial evidence you can rapidly get to a point where there may not be a sufficiently close connection between the observed evidence and the alleged offence (for example, sales may be lower as a result of some other effect, such as a sale at a competing store) so that the value of the evidence as corroboration becomes very much open to question.

David

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By AnonymousUser
24th Jul 2008 18:46

suing the accountant
I think it's a bit harsh to sue the accountant (unless they completely ignored a rubbish accounting system).
A few years ago I was bookkeeper for a shop with no way of recording sales figures other than trusting the staff. The directors lived 80 miles away, letting the staff run the place and fax through figures, which I had to tally to the bank statement (great fun).
I tried in vain to get them to implement a better system but all the MD said was "small employee theft is a risk we take for not being on site. They won't like a more detailed recording system, they will complain too much and it won't be worth it."

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David Winch
By David Winch
24th Jul 2008 17:59

Presumably . . .

Presumably the £100K stolen takings were not already included in the VAT Return figures.

I am guessing there was no reliable record of takings, e.g. a reasonably accurate till roll, and that is why the stolen takings have been estimated (based perhaps on a markup calculation?).

That is probably also part of the reason why the police have not prosecuted. They would look to see whether the employee had banked or visibly spent cash he / she could not account for, but if it went on booze / gambling / etc there may be no evidence of it.

This is just an additional reason why clients need sensible systems of control and accounting records.

The client could have a go at suing their previous accountant for failing to advise them of the risks in relation to theft of cash and taxation where there are inadequate systems. However there is a question mark over whether the accountant's duty of care would cover risk of theft by employee. Anyone any thoughts on that?

Technically a report to SOCA may be required. In view of the police enquiry you could keep it brief! Alternatively you may take the view that you have a "reasonable excuse" for not reporting under section 330(6)(a) Proceeds of Crime Act 2002 in view of the police investigation already undertaken (in which case the MLRO should make a file note of this).

David

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By User deleted
24th Jul 2008 16:05

Yes
VAT became payable when the goods were sold and the subsequent theft of the takings doesn't have any bearing on the matter. It might sound harsh, but it's quite logical.

If the employee had stolen goods, then there would have been no supply and therefore no VAT to pay

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