[Lucky88]

I am currently a licensed CPA working in a small company. My boss always withdraws money by writing checks to himself and states that the money is used for paying contract labor cost. I asked him for expense proof but he never gave any supporting document to me. How can I deal with this situation? Does it matter to me if I put his money withdraw in the contract labor expense as he requested? Is it an ethic issue? I don’t want this thing to bother me and my CPA license. Please advise.

[AGI]

Could you provide more information…

1. What is the business of the company?
2. Is he a lawyer?
3. Was there an actual contract?
4. Is he always writing the same amount on the check, with a pattern?
5. Is your boss a partner or the owner of the company?

I think what you first needs to rule out is 1) if the withdrawal is legit, and 2) if there's actually a contract. Obviously, if he's a partner or an owner, it will be reasonable. I would also back track if there's an actual contract, even a verbal one. This might be back ages.

I've worked with a small private company, where my boss is the COO but also acted as the lawyer of the company and the lawyer of the owner. He has a fix payroll from the company, but would also get contracted money for his esquire services. His payroll is reported on the books, but instead of getting paychecks, he will write himself in regular checks. And then he would also write himself the esquire service checks. His name and then his signature. In addition to this, he does borrow short loans from the company, to maintain some sort of operations and/or used it as an escort (or something). He does sometimes back it back, but doesn't follow a pattern.

What I usually do to record his money is first separate the esquire services and everything else. Then on that “everything else” I wrote it all as loan. I would at the end of the year write-off the loan that's equal to his portion of the payroll, then minus what he paid back, and then figures out where the rest of money is.

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I would say the degree if it bothers you, will depends if you are certifying the books and presenting it to the bank or whatever it might be. In my case, I am only in charge of the bookkeeping portion. There's another CPA who will certify the book. The partner is also aware of the situation. I have no obligation or responsibility.

Have I ever see any contract on his esquire services? Never. It's probably a 20 years old deal. I did flip back the book 7 years past history and every year it was about the same, it probably just existed.

This type of things happens a lot with lawyers, royalties, and extremely small owned companies.

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[Lucky88]

Thank you so much for giving me a such detailed reply.

My boss is not a lawyer. This is a corporation. He is the owner of the business. His withdrawal should be fine but I am afraid of tax problem if he withdraws the money in the name of contract labor cost. I am not sure whether he uses this money to pay contract labor cost(company expense) or just deposit to his own bank account. That's my worry. I'd like to know whether it will hurt me if he did some malfunctions. I don't want to help him with any tax escape. I am not practicing public accounting now, so is it still belonging to an ethic issue of a CPA?

[AGI]

In terms of your responsibility, in my personal opinion (which could be wrong)

If your job is bookkeeping, your job is only limited to record what happened. You do have an obligation to report or speak up your concerns about certain things, but you are not legally liable if no one listens. It then became a ethic or personal comfortability issue.

You are legally liable if you as the accountant, knowledgly misrepresented the financial position of a company, or committed a material mistake that caused financial and legal consequences. That usually comes with a certified statement, OR if you hold an important (managerial) position in the company (that potentially lead you to have benefit gains from the misinterpretation).

In the first position, there are ways to defend yourself in case it happened. In the second position, there are still ways but it usually doesn't work very well, so it might be better to find another office to avoid trouble.

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In terms of tax consequences, it will depends. If it's a C Corp and there's declared stock, then you ran into a dividend problem. If it's a partnership or LLC, less of a problem because it's usuay use a withdrawal and the tax consequences falls under the shareholders. (I might be wrong.)

If it is not a stock and dividend crap, then thr company's tax is right, because any withdrawal is an expense (any kind).

There's not enough information to determine if there's a tax escape, because we do not know what happened with the money. He could be paying someone as a contractor with 1099 MISC, or if he consider those as his shares of money, of if he wrote it as his payroll (which then he didn't pay payroll tax). If at the end of the day, someone paid taxes, then it might not be a problem.

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I am not an expert of tax. I'm reading it from a law perspective with the limited information.

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[Lucky88]

Thank you so much for your detailed reply.
I am making only base salary, not beneficial to any profit of the company.

[AGI]

The way how a case come up has nothing to do with earning extra. The argument would be rather your based salary (or overall salary) is above normal range, or if it falls into like a professional salary rage (like how much a CPA should earn), and then from there determined if your correspondence salary level = you have the skill set or responsibly to know this is wrong. Some crap like that.

What you could do is access the risk and make a judgement if those expense will be material enough to make an impact. You can also attempt to get a signature or statement from the boss certifying that those are indeed contract expense. There are things that you can do to prevent yourself in the hole or being sue (or only hold limited liability)

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[Recked]

In my opinion you don't have enough knowledge of the situation to make any judgement call.
If this is a single member LLC or similar the contract labor account might just be how he always records his draws. I've seen many stranger things in my time. You'd have to know if his accountant is reporting it properly on the tax returns in the end, to be able to make any determination if this is right or wrong.
This seems to be way over your pay-grade as a simple data entry/bookkeeper type position.
I do not believe this would impact your professional ethics in any way, and to put it bluntly, I don't see this as being your problem. This issue is between your boss, his accountant, and the IRS.
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If you had access to the business and personal tax returns, and could see this was being expensed to the company and not picked up as income on the personal return, and could also prove the money wasn't being used to make some legitimate payments, then you might have an area of concern, but you just don't know all the details from your vantage point.

[Author]

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