I have a new client who recently set up his own business and I am having some issues appertaining to invoices.
1. Out of the invoices he has given me about 20 of them have not been paid out of either of his bank accounts or his credit card, with the exception of one or two they have all been paid with either a credit card or by paypal. When I asked him about this he just said that they must have issued a new bank card with a different number on but the simple fact is I cant see any evidence that the money came from any of his accounts so I cant factor these invoices into his books. I think its likely that his gf paid for some of his suppliers as he was short of cash, I don't want to accuse him of lying to me but I don't know how to approach it.
2. There are quite a few purchases on his bank statements to various electrical suppliers (hes an electrician) that he has lost the invoices for, unfortunately he doesn't have an account with any suppliers yet so I cant get duplicates. He isn't VAT registered so I don't have to worry about that. As these are clearly business purchases should I just put them through without the invoices?
3. There are numerous cash deposits into his business account, he told me that they are from clients but I don't have any invoices to tie these payments to, how should I deal with these payments?
I have a new client who recently set up his own business and I am having some issues appertaining to invoices.
1. Out of the invoices he has given me about 20 of them have not been paid out of either of his bank accounts or his credit card, with the exception of one or two they have all been paid with either a credit card or by paypal. When I asked him about this he just said that they must have issued a new bank card with a different number on but the simple fact is I cant see any evidence that the money came from any of his accounts so I cant factor these invoices into his books. I think its likely that his gf paid for some of his suppliers as he was short of cash, I don't want to accuse him of lying to me but I don't know how to approach it.
If they are business expenses then you can factor them in.
I would advise the client to open up a separate business account and operate EVERYTHING through that account. If the client asks you why, then ask him whether he would like HMRC trawling through his private bank account in the event of an investigation into his business affairs!
Make sure that he places payment details on every subsequent invoice from now on.
2. There are quite a few purchases on his bank statements to various electrical suppliers (hes an electrician) that he has lost the invoices for, unfortunately he doesn't have an account with any suppliers yet so I cant get duplicates. He isn't VAT registered so I don't have to worry about that. As these are clearly business purchases should I just put them through without the invoices?
Have you got the contact details with the supplier. Some may be able to provide you with duplicates. If there are definitely business related then include them.
3. There are numerous cash deposits into his business account, he told me that they are from clients but I don't have any invoices to tie these payments to, how should I deal with these payments?
Better to be safe than sorry, but I would include them in sales. Can you get details of who gave him the cash so that invoices can be done.
You need to get everything in writing (so email exchanges are great) and when you've completed the work you need a management representation letter which is written by you, from the client and signed byy the client detailing every transaction in issue (Don't shorten the name to management letter as that's a completely different one written by you to tell the client what they are doing wrong as a value added service).
At the end of the day we try our best to protect the cleints from themselves but there are some real slap dash ones out there. Some annual ones you ask questions and they have absolutely no idea where the money came from that paid an invoice or where the money went to for an invoice of theirs that they swear was paid but there is no record of so with some clients credit control is just a non starter.
Right, the specific problems that you've been having.
1) Invoices that have been paid (How do you know that they have been paid?) but no record of payment so likely a personal helping hand from the girlfreind.
Record as owners capital introduced to petty cash and then balance off the petty cash against the paid invoice. (Then record it on your list for the management representation letter). There is of course an issue that you are taking the clients word for it that the invoice has been paid and that why we do everything via email.
2) No invoices for payments made
Try to get duplicate invoices, it will be obvious from the bank statement who the payment went to but not what the payment was for. Its naughty to include where there is no invoice but if its the occassional one where there are many other examples of payments from the bank with invoices and the amount is not out of the ordinary then I would let it through. Again, ensure that the client states this in correspondence and ensure that its included in your representation letter.
3) Deposits without invoices.
This to me is the most worrying of the three as it indicates that your client is doing work beyond what he is telling you about.
Include the amounts as cash sales but the existance of those is an indication that you need to but aware that your client may be doing work off the books but being too stupid to hide it properly.
All in all, seems like a pretty average self employed client with slap dash record keeping. Got a few of these myself. Invoices without receipts, recipts without invoices.
Personally I just give them a really, really hard time on the basis that they will either get there act together or go and find a different bookkeeper.
hth and sorry that its taken over a day for you to get any replies.
kind regards,
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.
Hi Mark. Glad to see that I'm not the only one trawling through the missed posts.
Good points on (1). Think that we agree on (2) and we've taken different but complimentary approaches to answering (3).
On (1) I read it that there was a business account but it just wasn't being used properly.
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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.
All the above suggestions are bob on. Consider this - When you prepare a set of accounts, you should always have a little report for the client to sign (at the bottom of the income and expenditure, or the balance sheet). Here is an example that I provided on another post today
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Client approval on balance sheet (lets say this is page 3) -
We/I approve these accounts for the year ended X X X set out on pages X to X and confirm that we have made available all relevant records and information for their preparation and give our/my authority for them to be submitted to HM Revenue and Customs
Accountants report -
As described on page 3 you have approved these accounts for the year/period set out on pages X to X. In accordance with your instruction, we have compiled these unaudited accounts from the accounting records, information and explanations supplied to us.
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Basically clients are responsible for providing you with information that is true. You prepared those figures "based on the information and explanations provided to you"
As long as you have notes about questions and answers (preferably emails/letters) then put the accounts together as they say. Its them who have to prove themselves to HMRC if they get an investigation and them who has to suffer the penalties. As long as you cover yourself with the paperwork to show you were told what you were told.. its not your call.
I am not saying people should ignore blatant fraud, but with these types of jobs, its not for us to play judge and jury. Sorry to go a little of track with this post. I totally agree with the suggestions above. I just wanted to add a little side note, because you will always have clients who come to you with "weird" ones :)
-- Edited by FoxAccountancyServices on Monday 31st of March 2014 10:01:25 PM
