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Practitioner's Diary: Incomplete interest records

30th May 2007
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Down in the West Country our general practitioner is having trouble with missing savings accounts.

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29 May - That was quick. I thought we had settled the missing bank accounts, but the Inspector has now sent a follow-up letter with my elderly client's bank interest figures for 2002-03, 2003-04 and 2005-06. He has been doing his homework! Fortunately the smart aleck has come up empty handed in the first two years as although there are a couple of accounts missing - once again, Abbey accounts closed in the year - my client was only a basic rate taxpayer, so there is no tax at stake.

There do seem to be a couple of missing accounts on 2005-06, but there is also a large account which neither the client nor we have ever heard of! I just hope the Inspector can provide more evidence because there is no way we can prove that it isn't the client's money, Abbey are not going to disclose information about an account belonging to someone else.

Looks like this case will run and run. Unfortunalely, it is only an aspect enquiry so our professional fees insurance won't kick in.

This is just on-shore stuff. Let's hope we don't find any off-shore accounts!

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25 May - Every day another database. The more we compare office databases the more of a mess we find we have. Offices have coped in different ways with clients belonging to other partners, so we now have a tangled web of duplicate client numbers and a mass of dummy clients and managers to make the thing work (we're talking IT here, I'm not commenting on the individuals!).

The good (-ish) news is that we're going to have to draw a line under it and make it work by the end of the month. May has to be closed off within two weeks of the month end and the new system goes live mid-June.

Can't wait.

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21 May - A bit of light relief from practice management software today. I am dealing with a peculiar aspect enquiry into an elderly client's 2004-05 Return. He sold some land for development and paid a lot of CGT, so the Inspector has been checking his building society interst to see if he can find any more Higher Rate tax to collect.

It would appear that the consolidated annual interest certificates provided by Abbey (National, as was) don't list all the interest that was paid in the tax year. The schedule provided by Abbey to HMRC lists quite a few accounts for which my client doesn't have a certificate of interest received, and being phone accounts has no pass book or other paperwork for 2004-05. We have identified several as being accounts closed during the year, but this doesn't account for all of them.

Has anyone else had trouble like this with Abbey or other building societies?

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18 May - A relatively unproductive day I suppose, but all essential groundwork. We needed to review our client database structure and work out what information we need to capture and how we want to structure it. No surprise then that every office has used the same software for some years and managed to develop a completely different data structure! Not only that, but they all manage mailshots and workflow using a variety of spreadsheets that store yet another range of data. I have no idea how our consultants are going to pull all this data together, but they will deserve a medal if they manage it.

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16 May - I don't know how we have managed to get this far with the old time and fees system in the state it was in. We haven't cleared out the "dead" clients since we started using it (it was our first Windows system!) and the whole database is in a right mess. It looks as though a lot of the year ends don't match the actual dates on our accounts prep software, and even the client addresses vary between time, accounts and tax systems.

If we weren't so committed to the 'best of breed' concept I'd be tempted to suggest we look at a fully integrated system (but not one in a green box!).

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14 May - Filed our first 2007 Tax Returns - at last! We did manage to file one in April 2006, but normally we don't have any ready until May. The trouble is, the tax team are stretched with P35s and P11Ds, so I can't foresee any real push on Tax Returns until after the summer holidays - again! At least we have trained up two additional team members to process Returns this year, so we should still avoid the last minute rush in January.

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10 May - The first major challenge of the practice software reorganisation surfaced today. Currently each office runs a separate system - using the same software - on its own server, quite separate from the other offices. This isn't a logistical problem as we seldom work for each other, with the exception of our central payroll bureau which handles clients from all offices. But one result of this is that we have duplicated client numbers and many clients exist as separate entries on different office databases, under different client numbers!

I don't envy the software gurus who are going to try to merge all the databases!

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9 May - Back to April bills. April is not traditionally a highly productive month but we seem to have been busy enough. It's just a matter of converting the business into cash. At the moment there's a bit of a lethargy when it comes to finishing jobs and getting the bills out. "I'll bill it in the next few weeks." OK, we'll pay April salaries "in the next few weeks" then, how's that?

And I need those bills out of the way so I can sort out the client list. I need to write off the dead WIP and delete all the lost clients. We also need to check the entire database to ensure that every client has been allocated to the correct office, partner and manager. Let the fun begin!

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7 May - Not a moment too soon, it seems. Just had some STUPID woman on the phone asking questions about the offshore tax amnesty. I admit I had to go to the HMR&C website to read up on it while I was speaking to her. I haven't taken much interest in the detail of the amnesty since I am working on the basis that my "clients", by definition, won't be needing to take advantage of the amnesty. If any of them do, they will no longer be "clients" on the grounds that they have been lying to me all along.

Anyway, I had to bite my tongue while I patiently explaoned to this lady that the interest HAD always been taxable and that she should be grateful for an opportunity to come clean at a reduced cost. I don't think she understood a word I said to her. As usual, her "friend in the pub" appeared to hold more authority than me or Her Majesty's Revenue and Customs. Thankfully she didn't leave any details so I haven't got the hassle of filing a Money Laundering report.

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4 May - I am bemused at all this fuss about the HMRC amnesty for taxpayers with undeclared offshore savings. A lot of advisers seem to be up in arms. What's wrong with the Revenue enforcing the law? I seem to pay enough PAYE and NICs to run a small country - or at least a medium sized hospital (don't get me started) - so I have no sympathy with people who want to evade their fair share of the tax revenues.

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1 May - Something to look forward to this month - the firm's new practice management system goes live at the end of May, all being well (which, when computers and software are involved it seldom is!). That means even tighter deadlines for getting April bills out of the way, May timesheets up together and clients lists "cleansed".

* * *
Last month our practitioner shared his thoughts on KPIs for an accounting firm.

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Replies (13)

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David Winch
By David Winch
11th May 2007 08:05

Your clients (and everyone else's!)

In relation to the tax 'amnesty', I would urge you to have an open mind and be alert to the possibility, no - probability, that not all of your clients are honest. Whether it be the professional man claiming an excessive proportion of his motor expenses in the family car as business use, or the proprietor of a cash business who withdraws undeclared cash from the takings, anyone who has failed to declare all their income in the past could benefit from the current tax 'amnesty'.

It offers a route to the regularisation of their tax affairs which promises to be swifter, less costly in accountant's fees and penalties and, most importantly, less stressful than a routine tax enquiry. It is a sort of self assessment for enquiries (SAFE, if you like).

It covers most taxes, not just income tax, NIC, corporation tax, s419, PAYE, VAT, CGT and inheritance tax. (It doesn't stretch to vehicle excise duty - the annual tax disc on your car windscreen - but it covers pretty well anything else!)

I would suggest that you write to all your clients advising them of the benefits of the scheme, and pointing out that action needs to be taken by 22 June if they wish to take advantage of this opportunity.

On a more serious note, there is a possibility that some of your clients (or their employees) are engaged in 'real' crime. If you have not experienced this you may not recognise the 'obvious' signs. I am thinking here of insurance fraud (excessive claims), mortgage fraud (over-statements of income), hire purchase fraud (common in the motor industry), theft of client funds (nursing homes), laundering proceeds of drug crime (any cash business, but particularly those in which there is no obvious 'cost' of sales), fraudulent trading (particularly relevant to insolvency practitioners), evasion of duty (pubs, tobacconists, importers), theft by employees (any business that has employees), and so on, and so on.

Failing to spot 'obvious' crime is dangerous for accountants in practice these days!

I co-presented a recent AccountingWEB event on fraud and money laundering, which was well received and may be repeated.

Alternatively I am doing a presentation at a joint ICAEW / CIMA one day conference in London on 6 June. Further details here. Why not book yourself a place?

David
www.MLROsupport.co.uk

P.S. A very cost effective alternative would be to book me for a day or half-day's training for all your staff at your office - we could then also cover the forthcoming Money Laundering Regulations 2007 which will come into force in December - so you would be right up to date.

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David Winch
By David Winch
10th May 2007 23:22

Money Laundering reports (not)

Re your posting of 7 May (and assuming your firm are Chartered or Certified accountants) you would not, in my opinion, be obliged to report the lady who rang you, in any event.

She was asking you for legal advice on her tax position and so the information was received by you in "privileged circumstances" which means that you are not obliged to report it under section 330 Proceeds of Crime Act 2002 or the Money Laundering Regulations 2003.

Indeed the ICAEW guidance is that you MUST not report it.

Speak to your MLRO about this.

(If you are your MLRO get some advice, or read AccountingWEB!)

David
www.MLROsupport.co.uk

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By AnonymousUser
12th May 2007 00:51

everyone's a fraudster it seems
yep thats right , or is david winch over-egging the risk ?

bearing in mind its in his financial interest to sign you up for advice you probably dont need and something you have (or should have) a nose for anyway.. this stuff is all common sense

secondly i dont understand anyone giving free snap advice over the phone , with the obvious messy consequences .. you probably wont be covered for any gaffs by your PI (no fee charged)

i get rid of timewasters like that by telling them to book in for a meeting (1hour fixed cost job paid in advance) .. they wont ring back

i also get rid of people who try to sell me places on courses i dont need with equal gusto

oh yes .. and the contents of this post is given strictly without any liability whatsoever on my part,... well what do you expect for free ?

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David Winch
By David Winch
12th May 2007 10:44

Who nose?
A,

Thanks for your feedback. However I don't think my earlier posting over-stated the case.

My concern is that accountants in practice are understandably focused on the task in hand - preparation of accounts, completion of audits, filing of tax returns, or whatever - and as a result may unwittingly have allowed their 'nose' to go to sleep.

What I recommended was that the practitioner "have an open mind and be alert". Frankly, his statement that he was "working on the basis that my "clients", by definition, won't be needing to take advantage of the amnesty", troubled me.

It sounded to me as if his 'nose' was firmly switched to "OFF". That, in my view, is dangerous.

I don't think I said that everyone is a fraudster, but I do think that most businesses are potential victims of crime or could be used to perpetrate a crime, and that accountants in practice should be alive to those possibilities. (I am here referring to what I call 'real' crime - not tax fiddles.)

I did, in effect, say that in my opinion it is probable that not all of the practitioner's clients are totally honest in their tax affairs. I stand by that view. That was certainly my experience during the many years I was in general practice. In those days I used to get upset when it was demonstrated that a client had been lying to me. If I had known then what I know now I would not have suffered some unpleasant surprises!

Regarding your comment about a course which is not needed, the practitioner had demonstrated an apparent lack of understanding of recent developments in relation to "privilege" and money laundering reports. Was it wrong to suggest that he consider attending a course to bring himself up to date in that respect (particularly as new Money Laundering Regulations will come into force later this year)?

David
www.MLROsupport.co.uk

P.S. I will leave others to comment, if they wish, on the marketing aspects of various ways of dealing with queries from potential new clients. It would appear that the practitioner had no appetite to act for the lady who telephoned him. Other accountants might have viewed her (and even "her friend in the pub") as a potentially valuable source of fees.

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By AnonymousUser
16th May 2007 00:55

not ignorant at all
I think its supreme arrogance to think someone ignorant of the law

Perhaps A actually reads his professional journals and magazines

He may also have a "nose" for those time-waster clients that ring up at the 12th hour and expect all the answers at the snap of their fingers .. yet take an age to pay

I think we've all been taken in by in those types at some point in the past :( ... its called experience....

a sucessful practice will always try and weed out the rubbish using a combination of instinct and experience

Its strange that Mr Winch was in practice .. but no longer is ... hmmm

Any "successful" practitioner will invariably tell you that he is very happy in his work and has no desire to change career

or are there any out there who disagree ?


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By steveoneill
18th May 2007 15:52

Coccaine in sausages?
Hi David

Coming to your defence here, though I would not be too confident that Mr Jones is not putting coccaine in his sausages, there is plenty of evidence and court cases of people putting cannabis in all sort of food stuffs for 'medicinal' reasons and selling it.

I fear like you David, I may also come in for some stick since I have now left practice to concentrate on my areas of experise, though I do remember those days well.

We have just completed 12 ML seminars around the UK with SOCA giving a presentation. One thing from the SOCA presentation has been very clear. Whereas there are some bent accountants, the serious criminal would not entertaian them, they want the accountant with a good reputation who they can manipulate and to a certain extent control. One case was highlighted to us that had 173 mortgage frauds in a 6 month period, in a small 6,000sqm area all using accountants certificates!

Because you do not see the criminal by the obvious, it does not mean he is not there amoungst your client base, it is not often they wear stripes and bring their records in to you in a bag marked swag.

We are now officially the worst country in Europe for drugs, worse than Holland were it is partically legalised and worse than Romania and Bulgaria who efforts on serious crime are noticably poor.

The 2007 ML Regs are more onerous and we have to be more aware of the dangers of being used by crimianls, not forgetting the vast army of tax evaders. The off shore tax amnesty potentially affects over 1,000,000 tax payers. This type of evasion is complex and costly to setup and maintain so just try to imagine the number involved in 'normal' tax evasion.

Prehaps, David, what the profession does need is a couple of well publisied prosecutions to get the message across, then perhaps the likes of you and me will stop being castigated for warning of the dangers of complacency.


Steve O'Neill
Business Tax Centre Ltd

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David Winch
By David Winch
16th May 2007 21:26

Arrogance and ignorance

RAB

Thanks for you comments, although I am not sure that I fully follow them!

I don't think I said "A" was ignorant of the law.

I did say that "the practitioner had demonstrated an apparent lack of understanding of recent developments in relation to "privilege" and money laundering reports". Is that the comment which you regard as "supreme arrogance"? If you do then all I can say is that I stand by the comment and I do not regard it as arrogant - it is my view based on what I read.

My main concern however was that an accountant in general practice may allow his "nose" to go to sleep because he is understandably focused on the task in hand (accounts, tax, audit or whatever). The issue is not one of ignorance of the law - the issue is one of being alert to issues which are peripheral but important.

May I correct you on one point? I was in general practice but I no longer am - I now practice as a specialist forensic accountant dealing only with crime and proceeds of crime (including money laundering and confiscation). I prefer to know a lot about a little (to have a great depth of knowledge about a small niche area) than to know a little about a lot (to have some knowledge of accounts, audit, tax, investment business, etc.). That's my choice, but I take my hat off to general practitioners who make a brave attempt to keep up with relevant developments in a wide range of fields.

David

www.AccountingEvidence.com

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By User deleted
16th May 2007 22:24

Oh dear!
I seem to have stirred up a hornet's nest here! Yes, I'm not a money laundering expert, and yes I suppose I should get myself updated - or rather I should encourage the firm's MLO to update the partners and staff since I'm sure we're all in the same position.

We have included information about the offshore tax amnesty in our last tax newsletter, but I certainly don't plan to write to every client. I have a good idea of the clients most likely to have had offshore accounts and they will be notified specially, but there are only a handful of them.

Are any large firms really mailing ALL their clients specifically on the amnesty? This seems to be to be nannying them to an unnecessary degree. What next - P35s? - are we supposed to write to all our clients who don't have payrolls and ask them if they have had any employees we don't know about? Or should we quiz all clients paying small amounts of wages on the basis that they might be breaching national minimum wage rules? If we start down this road i can't see where it's going to end!

Maybe I'm out of step with everyone else here. I have never been in favour of a mass mailing to remind clients about the 31 July second payment on account, but my tax colleagues have overruled me and we now invest a week or so in July checking taxpayer statements and sending letters to every SA client. They seem to think it's good practice, I just think it's a waste of (chargeable) time and resources. Bah humbug I say!!

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David Winch
By David Winch
17th May 2007 07:39

'Writing' to clients

Practitioner

Perhaps I used the wrong word, perhaps I should have said 'inform' all your clients, or 'commmunicate with' all your clients.

I think a mention in the firm's tax newsletter would do the job admirably (provided it comes out sufficiently before the 22 June deadline). Hand in hand with that, of course, your 'client facing' staff (horrible jargon!) should be aware of how to respond to any client who raises the topic (both in relation to offshore or purely onshore tax irregularities).

If there are no clients who wish to take up the option, having been made aware of it, then that's great.

In those cases where I act for the defence the bulk of my clients are drug dealers (but I also act for fraudsters and thieves - and even perhaps the occasional person who has done no wrong but has, for some reason, come under suspicion from the police or other authorities). Naturally coming from that context I see possible crime under every stone - so I am over-sensitised to it. I expect clients to tell me part only of the truth and sometimes just what it suits them to tell me (whether that actually be true or not).

I do not think accountants in general practice should view their clients in the same light. Mr Jones the local butcher is unlikely to be stuffing cocaine in the home made sausages which he sells!

However I do think general practitioners should be aware of the dangers and alert to the possibilities, because the law of the land now places that burden upon them. Maybe the occasional passing hornet is no bad thing!

David
www.AccountingEvidence.com

P.S. The recent development which I had in mind was the Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2006, but the Money Laundering Regulations 2007 - which have yet to be published in their final form - will come into effect in December replacing and, in some respects, extending the requirements of, the 2003 regulations. Most obviously there will be a requirement to confirm the ID of existing clients at appropriate times (but the impact of this should not be as bad as it might appear at first glance).

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By User deleted
22nd May 2007 08:21

Abbey
I have dealt with a number of banks over the years but Abbey was definitely the worst not so much for their ability to make mistakes (which has almost been matched by others) but their inability to resolve them quickly and properly. Two quick examples: a direct debit (to pay my mortgage with them) was meant to replace a standing order for the same payee. The form used was Abbey's own and quite clearly said that the DD would automatically replace the SO. Both then ran for several months AFTER I had been promised it would be sorted in days. When another DD (again payable to Abbey) was overcharged by a few pounds for a few months it took me the best part of a year to get a refund and then several arrived at once. I kept the extra payment as compensation for my phone costs and time calling their so-called hotline. This all happened a few years ago, perhaps they are better at solving problems now they are Spanish owned....

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David Winch
By David Winch
19th May 2007 17:55

The scale of crime

Stephen

I suspect that you, like me, have seen lots of statistics concerning how many billion pounds of drug crime / mortgage fraud / false insurance claims or whatever goes on in the UK each year. Personally, I find it hard to get any 'feel' from these numbers.

However I was told that one in six of all cigarettes smoked in the UK have had duty evaded on them and 3% of all bank notes in circulation are contaminated with illegal drugs. So there is a lot of crime about!

The Chancellor of the Exchequer, Mr Brown, has seen far too much of 'his' money 'lost' to financial crime - VAT carousel fraud and tax credit fraud to mention just two examples.

It is to be hoped that Prime Minister Brown will encourage the police and other law enforcement agencies to move financial crime up the list of their priorities (or in some cases add it to the list - because at present it does not feature on the list at all).

And let's hope it does not take the example of another unfortunate accountant going to prison to wake up professionals to what may be going on under their noses.

David
www.AccountingEvidence.com

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By User deleted
22nd May 2007 11:20

HBoS
Last year, one of my clients, pensioner too, provided me with interest certificates from HBoS detailing all 5 accounts she had including 1 which was marked as closed during 2005-06.

In 2006-07, she closed another account but the interest certificate she received only listed the 3 accounts open at 5th April 2007. No mention made of the closed account!

How can they think that such inconsistency is good for their clients?

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By AnonymousUser
23rd May 2007 16:11

Coutts and others & beware on-line accounts
I have had incidents with Coutts certificates being wrong by tens of thousands of pounds. Given the fees my clients pay to the bank I rather expected a somewhat better standard of care from them. When I did a reconciliation of the Money Market interest certificate to interest payment slips (no you don't get a "Money Market" account statement, just pieces of paper when each deposit goes on and off term), I found that a considerable amount of interest had been left off the certificates. It seemed that where there was a gap in the year when interest was not earned, bank statff didn't check back further before issuing the certificates.

Furthermore the next year the interest certificates combined both the gross-paid and net-paid interest on one certificate. Result: net amount wasn't 80% of the gross amount. I spotted this, but did wonder how many tax juniors just keyed in the net figure and didn't spot that the tax-programme-generated gross figure wasn't the same as on the certificate (resulting income under-declared)? Once I had spotted that there was an issue and Coutts had explained why, they were not able to tell me the underlying split so I had to rely on grossing up the tax paid to deduce how much was paid net and and hence how much gross.

As far as Internet accounts are concerned, I have had problems with Abbey National and Egg to name but two. It is very important that clients print off paper records. I remind them of this each time I send the annual questionnaire (but do they take any notice?). In my experience, details are kept on-line by the on-line Institution concerned for closed accounts for only 6 to 12 months after closure and it can be very difficult to get interest details or certificates later. In the case of closed accounts, many clients will no longer be able to access the information when you ask for it before preparing the return. In addition, clients often don't know the account number (because they always looked it up on-line) so it's even more difficult to get the details, even assuming they remember they had the account in the first place. Those opened and closed in the same tax year seem to fall through the net most often.

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