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Professional ethics: Working cash in hand

Posted by Rick Yvanovich on

Case study

Put yourself in the shoes of CIMA member CM. CM recently took up the role of accountant at a small food production and processing company based in the UK. As she settled into her role she noticed some practices that did not seem right to her.

Some employees were not on the payroll and were being paid cash in hand, raising the possibility that National Insurance contributions and tax were not being paid. Because the employees were not native English speakers she was concerned that they might not even have the right to work in the UK.

The company was run by two owner/directors, who were fairly set in their ways. CM did not agree with paying people off the payroll, and was concerned that she could be implicated if this ever came to light publicly. However, it was clear that the business had always been run in this way. Other people within the business were aware that it was going on and she had only been at the company a short time so was reluctant to ‘rock the boat’.

What would you do if you were CM?

CM, a CIMA member, found out that employees in her new company were being paid off the payroll. She was sceptical that the directors would change the way they did business if she raised her concerns. She did not agree with these practices and did not want to be implicated.

cima code of ethics

CIMA’s advice

The Code of Ethics would help her to think through which principles were at issue and her obligations as a CIMA member. The code also contains practical guidance on the steps that accountants should take in resolving an ethical conflict (section 100.16 – 100.21). Part of this advice is to consider all of the relevant facts and information. In this case CM knew that people were being paid cash in hand, but didn’t know for sure that they were working in the UK illegally.

When she called the helpline, CIMA advised her to raise the issue with the two owner/directors. If they did not take her concerns seriously, then we advised her to think of someone else who might be able to influence the situation. There were other company directors but they were not involved in running it, so CM felt it pointless to approach them. There were no external auditors of the company to call on for help.

CM had already decided that she would probably resign, as she did not want to work for a company that was run this way.

If, having spoken to the owners, CM had found them unwilling to rectify the problem, she would still have a responsibility to try and resolve the non-payment of tax, whether she remained at the company or not.

There was also a possibility that this was a money laundering offence, and so CM was advised to look at CIMA’s Anti-Money Laundering Guidelines to establish whether a report needed to be made to the Serious Organised Crime Agency (SOCA).

What CM did

CM went to the directors and told them why she was worried. They confirmed that employees were being paid off the payroll and that Pay As You Earn (PAYE) tax and National Insurance (NI) were not being paid for them but dismissed her concerns. They said that it was normal practice for the food processing industry and told her to ‘leave the running of the company to people who know what they’re talking about’. She followed this conversation up with an email and took a copy home with her. Since there was no company grievance procedure, and suspecting that this issue might be only the tip of the iceberg, she resigned.

She decided, to be on the safe side, that she would file a Suspicious Activities Report to SOCA, but did not tell the directors she had done so, as to do so could be regarded as ‘tipping off’. She did, however, tell the directors that it was her obligation and intention to inform the relevant authorities that the company was not paying PAYE or NI and served out her one week’s notice under the terms of her probationary employment.

Source: Compiled from CIMA


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 Rick Yvanovich
 /Founder & CEO/

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