Am i handling this client`s accounts correctly?

Trish · June 2011

I have a client whose sales are mostly cash sales and some card sales.
On a fairly frequent basis the client makes cash payments that total more than their cash receipts. In the cash payments, I include obviously purchases paid for by cash, cash back paid to customers who pay by card and cash that is paid into the bank account by the client. When the cash payments exceed the cash receipts I ask the client if they have put some of their own cash into the business or have they missed recording some cash receipts. The answer is always NO.
Am I doing something incorrectly? I would appreciate your thoughts about this.

Regards Trish

Monsoon · June 2011

If it's not personal money introduced, and it's not extra sales - what is it? That is what you need to ask them. The money can't have come from nowhere, and the two options here are the only 2 I can think of (other than someone else giving them the money). You need to say to them "If it's neither, then if HMRC make an enquiry, you will have to have an answer for them, otherwise they will assume it is extra cash sales, and either we have to declare them as such or you need to prove otherwise. We have got to be able to account for it."

I would have a possible suspicion of extra cash sales if it was me (i.e. a MLR issue). What industry are they in?

You need to be very careful as this is an obvious case where there could be undeclared cash and you need to put your communications in writing to show that you haven't just "let them get away" with anything that, on the face of it, looks potentially suspicious.

PGM · June 2011

Do they keep a float?

Do bank deposits always equal what is taken that day?

Trish · June 2011

They keep a float of £100. They only bank cash takings 3 or 4 times a month. The bankings do not equal the takings because they use some of the cash to make purchases and to pay bills.

Rinske · June 2011

Do they keep a daily record of the sales? Aka a reconciliation of the till receipt to the money in the till?

It could help to ask them to track something like this on excel. It's not that difficult to set a simple sheet up and might help you in finding where the cash goes. You might want to suggest it in order to lower the risk a bit. If they do that on a daily base, you might at least be able to match it to the banking receipts.

Although if you're not sure if the customer is getting the money legally, they might not be interested!

andrewtdk · June 2011

I would say there is a very good chance that they are recording the purchases but not the sales and are trying to take a little extra cash for themselves. I dont think its rare for people to do this but you would think they would realise that this will leave a load of purchases which were never sold on so its often pretty obvious.

mc25 · June 2011

I could go with the option of unrecorded sales from what you have said. Why dont you offer them a template one for expenses and the other for income. Then request them to make sure they record all the transactions on the templates, then if you have time review it after a month and this way you will be able to prove to them about the differences. Good luck.

Trish · July 2011

Am I handling this client`s accounts correctly? Further developments

I took your advice Monsoon and advised the client verbally that if HMRC did a spot check, they would want to know where the extra money had come from! The client is still adamant that they have not put in any of their own money and that all cash sales are declared. I have checked and rechecked my figures and cannot make them any different, i.e. their cash payments exceed their cash sales.

The client has informed me that they have asked a chartered account to check my figures and also to check their figures at a meeting at which I shall be present along with the client. Do you have any advice on how to handle this meeting. I would be very grateful for some help in this matter. I have worked in finance for nearly 40 years and have never had my work doubted before.

Monsoon · July 2011

Trish, firstly put your opinion in writing - verbal won't count for anything if you need to rely on it in the future.

Personally (and this is just me) if someone doubted my work and said they were calling a meeting with another accountant to check my work, my gut instinct would be to (politely) tell them where to go, and disengage, as I would find that very rude indeed. If I managed to keep my toys in the pram, I would probably say they were entitled to get a second opinion at their own cost, and that I wouldn't attend a meeting (that would be too weird) and review the other accountant's findings on my own.

Monsoon · July 2011

Sorry, should have specified in writing in my first post. I usually do!

Also,

If cash payments exceed cash sales and there is no explanation for how they were paid (if the proprietor is convinced they haven't actually put funds in to the business, maybe they just paid out of their own cash in dribs and drabs? They might not see this as injecting funds) then the records have been broken.

"Broken records" is a technical term HMRC use when investigating - the records prove there is a missing element, in this case either purchases have been overstated or sales/other funds have been understated. The business records as they are will prove that something is wrong. HMRC will reclassify it as extra sales unless you can prove otherwise.

Trish · July 2011

Thanks for your replies Monsoon.
I have just found out that the so called chartered accountant that they have asked to check my work is MAAT qualified and runs a business locally, but I cannot find her on the MIP list, she is not a chartered accountant. Is it ethical for a MAAT to check the work of another MAAT?
Regards Trish

Monsoon · July 2011

Trish wrote: »

Thanks for your replies Monsoon.
I have just found out that the so called chartered accountant that they have asked to check my work is MAAT qualified and runs a business locally, but I cannot find her on the MIP list, she is not a chartered accountant. Is it ethical for a MAAT to check the work of another MAAT?
Regards Trish

I don't think the checking issue is ethics. Nothing wrong with anyone checking anyone else's work as long as all people are happy with it.

I also don't think that just because someone is chartered makes them "more suitable" to check a MAAT's work, the qualification isn't relevant - if someone is licenced and qualified to do the work, then they are.

From a layperson's point of view I do understand the perception in getting a chartered to check a non-chartered's work.

As I've already said, if I was certain I'd done something right, I'd be very, very offended if a client said they wanted someone else to check my work over because they weren't happy with what the numbers were saying. Either you think I'm competent to do the work, or you don't.

I would be more concerned that a MAAT is operating without a licence (though may have just opted not to be on the MIP list) and holding out to be chartered!

On a practical point, if they want a second opinion, they should get the other accountant to do the work, as opposed to checking yours. I would not ever submit my working papers to another accountant for scrutiny.

Rinske · July 2011

I'm not sure why it would not be ethical to check someone elses work, so will be interesting to see the reactions to that.

As for the chartered bit, do you know if the MIP suggested she is chartered or that the customer made the assumption? As for not showing up on the MIP list, isn't there an option whether you want to show up or not?

Are you sure you want to keep this customer? As it seems a lot of hassle to me and might not be worth the money.

Am i handling this client`s accounts correctly?

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