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The Moneyist: My friend is worth $10 million. As his bookkeeper, I’m asked to record illegitimate expenses. Could I be prosecuted?

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Dear Quentin,

I work remotely for a friend doing bookkeeping work for his corporation. He writes off expenses in a “gray” area that I can overlook, and believe would pass an audit test. However, there are other expenses that I know are not legitimate.

My friend has a high net worth — well over $10 million — and could easily afford these personal expenses. Besides my conscience bothering me, how would the Internal Revenue Service and law enforcement view my participation?

I am told what the expenses are — and I record them in our accounting software.

Friend in a Quandary

You can email The Moneyist with any financial and ethical questions related to coronavirus at [email protected], and follow Quentin Fottrell on Twitter.

Dear Friend,

“I did what I was told” does not hold much sway for professionals who know the difference between illegitimate and legitimate expenses. You have blurred the boundaries between employer and friend, bookkeeping and tax dodging, and personal responsibility and professional obligation.

The IRS will hold your friend/employer responsible for fines and repayment of back taxes should an audit reveal serious errors or tax evasion, but he could point the finger at you for incompetence or, worse, knowingly making false claims. If you signed off on these accounts, you could also be liable and face hefty legal fees.

Unless you could claim a “due diligence” or “good faith” defense — you had grounds to believe that the claims made were accurate and complete at the time you balanced the books, and/or you were relying on information given to you — you could find yourself in hot water along with your employer/friend.

You risk damaging your reputation, in addition to any legal repercussions. You are required to comply with Generally Accepted Accounting Principles (GAAP) and/or Generally Accepted Auditing Standards (GAAS). I’ll add one more to that: Generally Accepted Personal Standards.

Do not allow others, regardless of their role in your life, to lead you into suspect decisions and risk your good name. Today, it could be dodgy bookkeeping, and tomorrow it could be a friend asking for money or a partner asking you to co-sign on a false mortgage application. You only have one signature. Use it wisely.

“When bookkeepers and accountants are interacting with the IRS, it is important for them to provide accurate and honest information,” Acting Assistant Special Agent in Charge Lisa Mendelsohn of IRS Criminal Investigation said in a recent case where an accountant was charged with providing false information to the IRS.

“Those who provide false information will be held accountable,” she said.

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Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

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