Practitioner’s Diary: The Work of our Predecessors

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I recently took over a case where the previous “accountant” ended up doing more harm than good.

The most successful people learn from those around them.

In our business of public practice, I’d say that at least one out of three new clients come to us because they have either neglected their financial records completely, or their previous accountant did something wrong, or did nothing at all.

One of my more recent cases, however, was quite special in the sheer extremity of its inaccuracy. In the ordinary course of business, most of us would evaluate the work done by our predecessors with a fair amount of confidence that on the whole, the work was done with some degree of professional care and competency.

It became quite clear to me at a very early stage of this engagement, that not only was the work performed inaccurate and incomplete, but there was substantial evidence to justify our opinion that this previous employee was not an accountant by any stretch of the imagination.

The financial records were littered with fundamental accounting errors – things like posting the monthly payments of an instalment sale agreement as a motor vehicle expense and claiming the VAT thereon, neglecting to raise the secured loan on the balance sheet and separating the interest and capital portions. These are rookie mistakes – mistakes that an accountant offering services to the public should not be making. But that is only half the story. For almost two years, the VAT returns were submitted in the wrong period. Eventually, our shadowy predecessor decided that this should be rectified, and proceeded to submit zero returns in the correct period because, in their opinion, a payment had already been made and there was no need for the correct figures to be submitted.

The damage was extended into both the income tax returns of the entity and its member. The member earned a salary, paid over PAYE every month and was even presented with a payslip and IRP5 by this very same “accountant”. Yet, according to the tax return submitted, the member did not earn anything for two years. It was astonishing.

Financial statements were never prepared or signed off and what was sent to SARS as a set of compulsory financial statements on a final demand notice was rejected and quite simply, shocking.  The financial statements sent through consisted of a total of three pages straight from Pastel, a balance sheet, an income statement and the trial balance.

Serious breaches of client confidentially were found while browsing through this client’s files. We found countless documentation pertaining to the previous accountant’s other clients. This consisted of other people’s bank statements, tax returns and assessments, copies of ID documents, personal documentation and bills – even if you are pro-recycling, one simply cannot use other people’s confidential statements as scrap or file dividers!

The list of wrongs far outweighed the list of rights. Ultimately, we were faced with the dilemma of ‘do we try to correct these errors, or do we just scrap all the work and start again’. Initially, correction was our first option, but the audit trail was so poor that we have decided to reprocess everything and save ourselves the headaches. In this case, it would be far better to use our own documentation when the audit queries start rolling in, rather than this fictitious drabble we were given. This rogue accountant has been reported and legal action instigated, but they have no accreditation with any accounting or tax body and thus we are relying solely on SARS for an investigation.

In our brief dealings with the accountant, they paraded about with an air of egotistical arrogance, as if everything they’ve done was correct and up-to-date and as if the client was overreacting and behaving irrationally. I think that is what irked us above all else.

To conclude, the work of our predecessors will often have to be relied on or referenced. We, one day, might be a predecessor ourselves. It is therefore imperative that our own work be up to a high standard. Things that look strange should always be documented and methods always disclosed. Protect yourself in the best way possible: Do it right and do it well.