I am preparing accounts for a sole trader, but the gross profit figure is looking ridiculously low and may reult in a net loss for the year. Obviouslly, I will check with my client that they have provided details of all income, but is there anything further I need to do? I understand suspiscions alone are not adequate grounds to make a money laundering report, is that correct?
Actually suspicion alone is enough to make a report!
The thing is do you actually have a suspicion, or are you concerned that the client has unintentionally omitted some income?
On the other hand, it is also quite feasible that the income is low, and all is legit, especially a new business, or where there is other income available.
HTH
Bill
-- Edited by Wella on Monday 11th of July 2011 05:19:03 PM
Bill is correct, you do need to check it with the client first.
I have had clients admit to including receipts twice. (Once as cash, and a second time through the bank!), or just not declaring their cash income or have accounts elsewhere they have not told me about. To date every client but one, has provided the details and been happy for me to include the information - so I was no longer suspicious and did not have to make a report.
The one clilent who did admit to having additional accounts, refused to give me any information. As apart from this, I had nothing to go on other than "my suspicions" so I had no choice but to report him. The report didn't have much information on it apart from confirning the client admitting to holding accounts and refusing to provide the details and obviously due to this I had a strong suspicion that the client was ML!
-- Edited by YLB-HO on Monday 11th of July 2011 05:40:06 PM
Is the client living off savings, state benefits or spouse income etc? If he's not living off profit, it must be something else.
You may already know something of his personal and private expenditure. Tot-up how much they need to live (incl. holidays, birthday presents, cigs, everything) and see how that sits with the household income. There may be insufficient income to put food on the table or it may come to light that they've taken out a personal loan.
With a rough idea of their household expenditure, you will be in a better position to question the income.
There are many reasons that the gross profit figure may be low and as the bookkeeper you should be in a position to know why.
Only where there is actual non disclosure of income or over disclosure of expenditure or legitimate suspiciion of either should this be escalated.
At the moment it sounds as though you are looking at the end figures without taking appart all of the nuts and bolts to unwind how those figures were arrived at.
To quote Lord Denning (1958) :
"One must come to it with an inquiring mind - Not suspicious of dishonesty - But suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none".
In looking for the mistakes dishonesty will become apparent, or not. But until one has reasonable doubt as to an indivuals integrity rather than an expectation of greater gross profit without further analysis then I feel that it is wrong to consider suspicion reporting under MLR.
P.S. Edited due to spelling mistake
-- Edited by Shamus on Tuesday 12th of July 2011 10:39:36 AM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I have now spoken to my client who assures me that I do indeed have all income and that nothing has been missed. They also told me that it had been a bad year and they had been more diligent at keeping expenditure receipts.
I prepared speadsheets based on the bag of receipts I had been given to arrive at the year-end figures, and so am aware of how these figures originated.
Looking at the P&L it seems clear that the problem is dur to income dropping by a third but material rising by abot 10%. I do know that my client requires his income figure for tax credits and so does have access to another form of income.
Always worth looking for the changes from previous years to highlight any trends. I can quite understand that if your clients previous years were reasonable, they may ommit some expense receipts (lazy, careless) but in tougher years claim every single 30p car park ticket etc.
Shaun. Like the Lord Denning quote. Basically says what I think but in a more refined way .
it's one of those quotes that you read and think, that's really good. I'll save that for later. I've got a whole box full of index cards with various quotes on. Every time I read something by the great economists and financial theorists that I think is really well phrased I hive it away.
One of my favorites that I've been waiting for ages to use is by Milton Friedman (a great economist, sadly passed away back in 2006) in relation the business owners going on philanthropic ego trips with company funds.
"The Role of Managers is to maximise profits from the owners of the entity. To work for other anenda's for other stakeholder groups is in effect using the resources that they control to raise taxes and decide how those taxes should be spent which is properly the function of government".
Great line, great theorist.... Probably regarded as the anti christ by charities!
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I really don't like the bit where we should report on suspicion alone, in the case of one of my clients who has a beauty parlour, she spends so much money on equipment, stock and courses, she loses money continually, but has a husband that makes pots of money and she lives off him. He doesn't mind and thinks it rather sweet his little wifey has a hobby. It would be easy to assume looking just looking at her books and wondering how she is driving a BMW 5 series that she is laundering, but she really doesn't have to.
Don Tax wrote:
Is the client living off savings, state benefits or spouse income etc? If he's not living off profit, it must be something else.
This is a good guideline to work with. You don't always know what goes on behind closed doors and any HMRC inspection I have taken part in, the clients have to disclose other income. The HMRC look for evidence that the person has been able to live on something. Gone are the days when businesses could pocket their cash and make their books look as if they are living on nothing.
The sales records consist of some CIS statements and copies of invoices he has issued. There is no break in the numbering sequence of these invoices. The business is a mix of cash and cheques.
Hi - Similar to this current posting (apologies if I should post a new topic..)
I had a client to whom recently terminated my services without the contracted notice (this now is a separate issue) as I had uncovered years of undeclared income, which in itself means underpaid VAT, less profit and therefore didling his mum (Company Secretary aged 84) out of her profit share and dividends. I also believe firmly that the accountants are more than aware of the situation as there answers to my questions where just off the scale! He used my mums sudden death as an excuse to terminate my services!
He is telling the staff not to ring certain things through the till, and is amending the daily income when large bills have been paid by cash. I have witnessed all this and when I approached him, he said it didn't happen. I then caught him amending a record and he told me that he would put the income and record back into the business in a months time (he was going on holiday), when the time approached I asked him for the record and cash and he refused. I asked twice more and he still refused.
Please can you advise the course of action as I am worried that he would counter sue for something he could muster up (he is that sort of person), if I report him.
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