Ethics - Inhouse Management Accountant

I've already posted this on boards.ie but it was suggested I might get a better respone here so here's hoping......

I'm a CIMA qualified accountant who up to now has always worked for big companies/public sector. I've just started a new job and am two months into a job in the service industry working as a Financial Controller. A firm of external accountants does the year end audit.

I'm uncomfortable with the type of expenses the owner is getting reimbursed for as business expenses (most are very obviously personal and not business expenses). The owner's children are drawing a PAYE salary from the business all year around yet only work during the summer holidays. There are other things too but these are the two ongoing things I'm aware off.

I have an idea of how I'm going to approach this but am just wondering if anyone has any experience of this and could give me an idea of what you did/would do in this circumstance.

First off, welcome home to the land of saints and tribunals. Secondly, maybe tinker with a few details in your post to avoid making it too obvious who you are and the organisation you might be referring to.

1) I am not sure that there is a problem with the children being paid a salary? Check with your auditors if this is ok? It's up to the company decide how much to pay people. If they work for 3 months but get their pay over 12 months, there is no real problem with that as far as I know.

2) Raise the issue of personal expenses directly with the Managing Director. Tell him that the company would be very exposed if there was a Revenue audit. Tell him that it is your duty as the Financial Controller to point this out.

Ask him if the auditors have given their approval of this arrangement. If he says that they have, ask the auditors for a copy of the letter they sent him.

Send him an email with your concerns to protect yourself.

3) If he does not explain the situation or address the issue, then you will have to move on.

4) Your Institute should be able to provide you with someone whom you can discuss the details of this with in confidence.

Brendan

Thanks a million guys. I've edited my original post. Brendan, that is very sound advice which I will take on board.

bagel01 said:

I'm uncomfortable with the type of expenses the owner is getting reimbursed for as business expenses (most are very obviously personal and not business expenses).

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Do bear in mind that the company directors are allowed pretty generous mileage and subsistence allowances under Revenue rules as explained in their leaflets IT51 and IT54. For many entrepreneurs, the line separating business from personal expenses can often be blurred and it is sometimes a matter of opinion whether a particular item is business-related or otherwise, especially for the type of business person whose work dominates their personal life. In this context, your discomfort may or not be warranted.

I would suggest that you bring the matter to the owner's attention, but I would not go so far at this stage as to make a scene about it or demand documentation from the auditors. Much better and safer from your point of view to wait until you get a chance later on to discreetly discuss the matter with the company auditors, and then act on what you know at that point. Acting now in haste would simply put you at risk of undermining yourself in your new position.

Ubiquitous, thanks for that. However, I've read both those documents and from my reading Directors are treated as employees for the purpose of expenses so the rules are the same. Or am I missing something?

Yes, the same rules apply for directors and employees, but as I have said above, the context of individual cases can sometimes have a bearing on how the rules can be legitimately applied in practice.

Also, bear in mind that in many family businesses, it is common for personal expenses to be paid through the business but for these to be 'added back' when the individuals' income tax returns are prepared - so there may not be a problem at all, even in the case of expenses which are very clearly not allowable but are being reimbursed.

If you are not responsible for finalising or filing the tax returns, and if there are no external shareholders who might be prejudiced by this 'milking' of the business, then I really wouldn't worry too much about it.

MOB said:

Also, bear in mind that in many family businesses, it is common for personal expenses to be paid through the business but for these to be 'added back' when the individuals' income tax returns are prepared - so there may not be a problem at all, even in the case of expenses which are very clearly not allowable but are being reimbursed.

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This also happens occasionally in the case of owner-managed companies where the owner/director has previously loaned substantial sums to the company, and recoups this on a gradual basis by intermittent cash withdrawals and/or discharge of personal bills from the company. Once care is taken to record all transactions appropriately and in an organised fashion, it is otherwise quite straightforward to do this within the law.