Advice needed

Gianni · April 2009

I'm looking for some advice really, follows on from my Directors View post a couple of months back which after a discussion with the directors things improved but are now at a new level. It was our year end 31/03/09 and it has come to my attention we have over £140k of sales pre invoiced. It is the directors intention to fulfil the orders and stock is coming in however the supply will not be until April. The profit element is probably about £30k.

The reason it is largely done is to advance cash from the factor. I think it has the following implications:

- There will be no purchase for the stock
- Not all the stock of one item was sold and yet obviously at our year end stock take no stock will be showing as a balance
- There will be no freight inwards invoices or VAT (stock from asia)
- There will be no misc packaging charges
- No freight outwards
- The VAT return will be incorrect as a result of the above, i.e. no matching purchase VAT against output VAT

A lot of it can be sorted by accruals (which I will refuse to do to cover their actions) but I'm very conscious I'm becoming implicated here already and I am close to resigning. I am the only person in accounts and already struggle with the workload and with their refusal to take anybody else on and the dodgy practice that occurs (especially if I'm off at any point) it's a struggle keeping a grip on things.

My question is, am I implicated (this ultimately is fraud on their part although they don't believe it is)? I am leaving anyway (final straw!) but do I have time to secure another job before I have to resign? I don't want to face disciplinary action and ultimately lose my status as I'm also studying for CIMA at present.

Monsoon · April 2009

Firstly, I'm pretty sure a standard factoring agreement won't cover fees in advance. So they are likely in breach of their factoring T&Cs if they are factoring invoices for goods not yet sent. If so, then that is likely fraud.

As to showing these sales in their accounts - if they want to pay the CT early, that's their problem! Equally the VAT return is only incorrect if it omits transactions that have happened or includes documents that don't exist. They will be paying over their VAT early with no purchases to offset - that's not helping their cashflow!

To be honest getting the cash from the factor is offset by the VAT idiocy and the advance on CT (you could credit accruals but I don't think it woulsd be strictly correct, I can't remember, would have to look it up)...

You can't accrue purchases if they aren't correct i.e. if stoc khasn't been delivered you can't accrue for it; if it had been delivered but not invoiced you could accrue for it. If they are asking you to accrue for costs that have not been incurred then that's really really wrong (and you are right to say you refuse to do it).

Call the AAT ethics advice line and get it from the horses mouth what they would expect you to do in this situation. Also consider your MLR obligations (if they apply to employees, I don't know, I'm a MiP) if they are profiting from the 'proceeds of crime' then you might have to report to cover your back, I don't know.

Have you voiced your concerns about their methods in writing? I would seriously get advice from the AAt - it's what they are there for and you want to be covered.

Good luck, sounds like a horrid situation to be in and you do need to leave ASAP for your own wellbeing!

Let us know how you get on and sorry I don't have more definitive answers

blobbyh · April 2009

I had this exact same situation when I was at my old company a couple of years ago and pre-invoiced over £100k of our sales ledger. It is fraudulent since it breaches the factoring agreement - you've obtained money upfront by deception - and I sought private advice from one of the senior forum members on here. While it's not an absolute, I was reassured that as an employee I was mainly doing as instructed by my directors and that should the legal axe fall, it'd be mainly on their shoulders not mine.

In the ongoing liquidation of the said company, of the £100k pre-factored, there was still over £70k left to collect from the debtors many months later, making me wonder that as well as the pre-factoring, if some of the sales might have been downright fraudulent with made up debtors. However, even though it's over a year ago, no-one has ever contacted me for my role in the sorry situation and nor do I lie awake at nights thinking it's only a matter of time before they will.

So my advice would be to do as you already are. Leave before your stress levels completely blow (as they surely will) and try to put it behind you while moving fowards.

Gianni · April 2009

faerie9,

Thanks for your advice. You are right, you are not able to pre sell when using factoring. The directors argument is they are the guarantors for the facility and therefore it's not fraud as they will have to pay it back if anything came of it. This may be the case but as I've told them, would you like to raise that answer with the bank then?

In respect of sales, as I am sure you are aware sales can only be recognised against specific recognition criteria (generally when goods are shipped!). That's my concern, the financial statements are fraudalent as they will mislead users which include the bank and a fairly large private investor. How they've not worked anything out yet is beyond me. The company has made substantial losses this year and thus no CT will be applicable! The VAT situation concerns me because an inspector in the past has compared against annual accounts and it would be apparent what is going on in this sense. We are in VAT arrears as well so they don't think of that cash flow aspect!

It's the accruals for purchases as you state that really concerns me. How can you accrue for stock you know hasn't even arrived?

I have voiced my concerns in writing to cover myself and they are fully aware of the situation after a bust up last week.

blobbyh,

Think you commented last time as well, thanks again. Sounds like you were in a very similar situation, I'm just concerned I'm involved that much in every aspect of the business it's almost like I become part of it. The only difference is I have no financial interest nor am I a director so I have no reason to do the above acts, nevertheless, don't want to throw away a career.

It's not easy making these decisions as it's not just my job I have to be concerned about (I'm actually fairly certain I can get another job quickly) it's the other staff I am more concerned about who work really hard but through no fault of their own could be out the job if I decide not to do certain things. Really speaking either way, there's no accountant worth their salt who would come in and take over if I left with it like this.

I think the best solution now is to give the AAT ethics line a ring on Monday (may also need to call CIMA!) and get their view and then make a decision from there.

Advice needed

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