More bad accountants 2024
This year started off with a few new clients coming to me for help and guidance. The following are case studies of what went wrong.
Small painting company.
The client came to us as he found getting any information out of his “accountants” to be difficult. And to be fair that is what the “accountants “ said of the client.
However, the issue was the client was a long way behind in filing and paying Income tax/GST and Small business loan.
There were 2 shareholders, it is a husband-and-wife team. The wife never received any disclosures nor returns or accounts to approve. The husband, who I engaged with, said the same, GST was filed without his sign off. The accounts and GST were filed without reference or APPROVAL to file. The result was the client had racked up quite a lot of debt, without his knowledge. This is a far too common problem and not the first time I have experienced this.
The “accountants” pressed me for their fees before they would hand over any documents and files. It turns out they had no engagement or terms (or instructions for that matter) to act, and their charging was unregulated. I also pointed out their delinquency in not engaging with the other shareholder, filings were made without approval, and their “accounting” was in fact abysmal. Xero was used which is a technical software platform, and the cost to the client was around $80.00 plus a month. The “accountants” coded bank fees as $8500.00. This was just one of the many issues uncovered.
Trust gone wrong
A very unusual case came to me recently. A trust had been subject to and IRD Risk Review and assessment. Basically, the Trust had not filed tax returns for a few years back. The usual Chartered accountants declared the issue was above their pay grade, so a CA. was hired to do the returns at quite the fee. From my examination the costs centres (expenses) were on the very light side of the ledger. The accounts and tax returns were filed directly with the risk review officer @ IRD without refence or approval to form the client. The tax bill is massive and includes significant Provisional Tax which is totally unnecessary given that all the data and trading cessation were know!
THE C.A who did the work made submissions for remissions of shortfall penalties, negligence and more. All of that was a waste of time as all of that was not relative to the issue. The returns were needed and that was the end of the review. The C.A also made a lump sum payment option to Inland Revenue which was privy information and not approved.
If we go with the tax bill, my client will be paying tax forever.
All the work is being redone, with submissions to write off the lot.
An Upside Down Small Business.
This client came to me after termination of services with SBA Botany, I believe. Here is what he said:
“Thank you for looking at my Xero account. Yes, I agree it is a mess because SBA did not know what they were doing and we had so many different people interact with me over the time I was with them. SBA were charging me too much for the service they were providing, but they tried to tell me they had to charge me higher because they were doing GST returns”.
These accounts were very simple and more of a hobby. GST deregistration should have occurred along time prior to me stepping in. One GST issue was that ca motor vehicle purchased by the4 client personally saw GST claimed on that. This is grossly incorrect as vehicle mileage was negligible and primarily personal use. In this Case FBT should also have been filed.
The client was better off to claim a vehicle mileage allowance rather than anything else. The wind-up GST returns did not include retention of all company assets incl the car. The client has now had all of this sorted, simplified and brought up to date.
The Dunning – Kruger Effect
I really have heard it all when it comes to how tax returns should be prepared, how accounts should be coded and what should be deductible no matter what the expense. It is not an uncommon thing to hear “my friend told me that I can do this so therefore I can.
The Dunning-Kruger effect is a situation where people with limited knowledge of a given topic significantly overestimate their understanding.
I have very much noticed this in another business I have to the ruin of the customer.
In all cases ASK first. Repairs are costly.