Finance related query

[Bevendean Hillbilly]

OK NSC, heres the question...

If the MD of a company (which is a subsidiary of a corporation) recieves funds from the parent company in order to finance a specific project then elects NOT to spend the money for this purpose but instead sticks the funds on his profit line what, if any, offence has he committed?

Thanks.

 

[theonesmith]

Not sure he would have committed an offence per say.. As the money is kept in the corporation. Not sure his manager would be too pleased to find out though, unless it goes deeper and that money was intended to be put on his profit line to keep shareholders happy

 

[Buzzer]

Off the top of my head, it's false accounting.

It's clearly not income, it's a related/inter-co investment

 

[Perry Milkins]

Breach of fiducary responsibilities.

 

[Ringmer bha]

It couldn't go on the profit line unless it was invoiced betweent the companies for services supplied. Even then it is inter company and the tax man will take a view that the services supplied (in this case - none) do not warrant the payment. If investigated the money would have to be repaid with a fine levied at least. Don't do it.

 

[Bevendean Hillbilly]

Off the top of my head, it's false accounting.

It's clearly not income, it's a related/inter-co investment

Ah, I'm glad you're online!!

The funds were allocated against a specific budget request but were deemed to be "uneccessary" for this purpose which resulted in the project failing, My query is whether or not an offence has been committed in law or whether it is an in house problem only? The corporate operation in the US does not seem to have noticed.

 

[Tim Over Whelmed]

If increased profit gives him a bonus and any benefit I would say it could be perceievd as fraud?

 

[Acker79]

I have no idea but some questions I would have (which may or may not be relevant)

Did he ask for the investment for the project, or did the parent company insist on it? I imagine if it's not breaking the law then not doing what you're instructed to by your bosses would certainly be something that could result in disciplinary procedures.

How does this affect tax, etc? Will the company end up paying tax on money it has moved from one account to another after already paying tax on it?

Where did the parent company get the movie from? Did they apply for a grant on the basis that it would be used on said project?

 

[Buzzer]

Maybe its below materialitY. For audit purposes but should get picked up by auditors AND group auditors, otherwise there's an inter-co trfr that doesn't tie up on the balance sheet.

Also, it should stick out like a sore thumb on the income line. Where's the invoice? What about VAT output etc etc

if I were you, and you think this is an innocent mistake, point it out to the company accountant formally and copy in the MD. If you suspect foul play then I would contact the companys auditors and the parent company but make sure you read the whistleblowers charter first. I don't know an awful lot about whistleblowing but suspect that if you have strong suspicions of foul play, you may have a responsibility to report it.

Email me matey and we can discuss further

 

[Bevendean Hillbilly]

I have no idea but some questions I would have (which may or may not be relevant)

Did he ask for the investment for the project, or did the parent company insist on it? I imagine if it's not breaking the law then not doing what you're instructed to by your bosses would certainly be something that could result in disciplinary procedures.


How does this affect tax, etc? Will the company end up paying tax on money it has moved from one account to another after already paying tax on it?

Where did the parent company get the movie from? Did they apply for a grant on the basis that it would be used on said project?

He did'nt ask for the money. A senior manager tasked with delivering the project submitted a budget request for R&D, Market research etc, which was approved by the corporate side and the funds transferred for that purpose. When the MD realised that this money was available he spoke to the manager concerned and told him that he was not to spend anything on the activities he had identified as being necessary. The funds were then switched to the P&L account.

Not sure on the tax question you ask.

The Parent Company are extremely cash rich so funding for projects is available once the proof of concept has been approved.

The thing is that the project has failed because the funds were witheld but the MD is blaming other factors, there has obviously been a false accounting issue but what is the penalty if discovered?

 

[timbha]

surely the parent company will record it in their books as an inter coy transfer and when inter coy accounts are reconciled the accountants/auditors would expect to see an equal and opposite entry in the subsidiary's books. The credit posting (trying to remember his book keeping "T" accounts) should be somewhere on the balance sheet, increase in share capital? cash?).

Was the money actually transferred or is it just a case of the parent coy giving the subsidiary permission to spend unbudgeted expenditure?