Share this content
8

Direcor embezzlement.

Direcor embezzlement.

Didn't find your answer?

I have a client (Ltd Co) with 3 directors. One of the directors has been found embezzling.

We have posted the amount embezzled to his directors loan account, making the DLA overdrawn and tax due on the balance,

but the other two directors insist that it should be an expense to the company.

Can anyone clarify which account this amount should be posted to please ? 

Replies (8)

Please login or register to join the discussion.

David Winch
By David Winch
20th Jan 2012 09:03

Interesting!

If I understand you correctly you are saying that a director misappropriated company money (dishonestly and without authority).  To be blunt, he stole it.

What is the company doing about this?  Are they hoping to recover the money from the director (by legal action or otherwise)?  Has he ceased to be a director / shareholder?

Or is the company going to let him keep the money?  Is the company intending to 'make it right' by putting through extra remuneration to cover what he has had?

Presumably the other directors have taken legal advice (particularly if they hope to recover the money or, for example, take shares off the errant director in lieu of what he has had).

If the directors have not already taken legal advice I suggest that you recommend that they do so.

If the company are seeking to recover the money it should, in my view, be in the Balance Sheet even if there is a 100% 'bad debt' provision against it.

If the company are not seeking to recover it and the errant director has been sacked then you might want to put it through the P&L Account as 'theft by former director'.

Whether the P&L debit (whether as 'bad debt' provision or theft) is allowable for tax is a different question - it may well not be allowable as not being incurred in the trade.

If the company puts through extra remuneration to cover it then it may be allowable for tax (but there would of course be PAYE implications).

If it was theft of takings (which involved those takings not being recorded) then there may be additional VAT to be declared on those takings.

Are you sure that everything untoward has come to light or could there be further theft etc yet to be uncovered?

Of course you need to consider a report to SOCA under s330 PoCA 2002 / MLR 2007.

David

Thanks (0)
Replying to mat001:
avatar
By PitiBev
20th Jan 2012 11:29

Thanks

 

 

Thanks David,

The director has resigned, shares transfered etc and CID have been informed.

Our client is looking to recover the money, but doesn't realy hold out much hope.

We don't think there's anything else we haven't uncovered yet, fingers crossed. He wasn't very original or inventive with his method of theft,

just writing cheques to himself while telling the other directors that he was paying suppliers etc. Blindingly obvious at the year end.

 

If we put it through the P&L as a bad debt or theft, any idea who would know if it's allowable for tax ?

 

Thanks again for all the info

Bev

Thanks (0)
David Winch
By David Winch
20th Jan 2012 12:28

HMRC's view

For HMRC's view on tax relief (not) check HERE.

By the way, if the director was dishonest and stole from the company by writing cheques to himself and showing them as payments to suppliers then I suggest you ask yourself whether he will have been in every other respect honest and trustworthy or whether he might also have had other 'fiddles' going on which have not yet come to light!

You might want to discuss with your client whether they want you to do some extra (paid) work around that possibility to try and put their minds at rest.

It might also be worth checking whether this had been going on for longer than you presently know about.

If the police do prosecute (which they may if it is a straightforward case to prove) and he is convicted the Court may order him to pay compensation to the company (i.e. to repay what he stole) if he has the means to do so.  (It might be sensible for the client to write to the police officer in the case indicating that they would want the Court to make a compensation order in the event of a conviction.  If anybody wants to know the Court's power to do so, in England & Wales, is s130 Powers of Criminal Courts (Sentencing) Act 2000.)

The police however are unlikely to investigate the company's records to look for additional thefts - especially if they have 'on a plate' a good enough case to take to Court already.  Where the police have an advantage is that they will have access to the director's personal bank accounts and may see in there some deposits for which there is no known legitimate source.

David

Thanks (0)
Replying to bernard michael:
avatar
By PitiBev
20th Jan 2012 15:33

More theft .....

 

Thanks again for all your advice David.

We have triple checked that there were no other methods of theft and we're quite confident that the cheque writing was the only one. We have gone back as far as Oct 2010 and had the bank send us copies of the cheques just to be sure.

I didn't realise that the company could ask for compensation. Sounds good to me as the company has suffered. Apart from loss of reputation, they now have an incredibly large overdue account with their main supplier.

If the police can get access to his personal accounts, it would be reassuring to reconcile the payments that we know about and see if there are any other deposits. Although, some of the cheques written were to his mortgage company, his relatives, money lending companies etc, so many of the cheques didn't touch his personal bank account. 

Many thanks

 

Bev

Thanks (0)
avatar
By Roland195
20th Jan 2012 11:48

Opposing point of view

Not sure I am following the mechanics of the theft. The director wrote cheques to himself but did he record this on the stub as being to himself or to the fictious supplier?

If it was recorded as being the supplier, then how was it uncovered? Did you ask the bank for the details of the cashed cheques?

 

 

Thanks (0)
Replying to Tim Vane:
avatar
By PitiBev
20th Jan 2012 15:40

Cashed cheques

 

Hi Roland

Yes , the director wrote the names of suppliers on the cheque stubbs. We became suspicious at the companies year end when I had seen a statement from their main supplier, which didn't tally with their payments. In the proccess of asking the usual year end questions about closing creditors, one of the other directors realised that they should NOT have an overdue account with ANY of their suppliers of such a large amount (£36,000).

And yes, we got copies of all the cheques from the bank.

Bev

Thanks (0)
David Winch
By David Winch
20th Jan 2012 17:07

Compensation

Bev

The criminal Courts normally will only award compensation under s130 PCC(S)A 2000 in relation (in a theft case) to the amount stolen and not recovered.  So nothing extra in relation to, for example, loss of reputation or additional costs incurred in pursuing the wrongdoer.  The compensation order will reflect the offender's ability to pay (and would not usually be made to an extent that would require him to sell his home, for example, especially if he has a spouse & children).  You can read more about compensation orders HERE.

With regard to personal bank accounts of the director, the police can get access to them (for example under s345 PoCA 2002) but I would expect that they would not provide copies to yourself or your client unless you have obtained a court order requiring the police to disclose that information.  Such a court order MIGHT be obtained if your client is pursuing civil proceedings against the director in the High Court.

But ordinarily I would not envisage your having an opportunity to check them against company records of payments.

David

Thanks (0)
avatar
By PitiBev
20th Jan 2012 17:27

Many thanks

Ok  ....  point taken. I'll forward the info on to the other two directors so that they can make an informed decision.

I don't expect my client to pursue any civil proceedings, and they definately don't want the directors family o suffer in any way.

I think that about wraps this one up. I have been notified that the amount 'stolen' may probably/hopefully be allowable for tax. HMRC may argue the toss, but in the majority of cases will accept if an explanation is given, so  .....  fingers crossed.

Thanks again for all your help and advice, it's much appreciated.

Bev

 

 

Thanks (0)
Share this content