As a business owner, one of the most critical relationships you’ll establish is with your accountant. A good accountant can provide invaluable advice, help you manage your finances efficiently, and guide you through complex tax issues. However, not all accountants are created equal. Unfortunately, some may give bad advice that could lead to financial mismanagement or even legal trouble. In this article, we’ll explore the red flags that may indicate you’re dealing with a bad accountant and provide tips on what to do if you encounter these issues.
Identifying dishonest practices is crucial in deciding when to part ways with your current accountant and seek one who values transparency and ethical conduct. Based on our experience, below are red flags related to dishonesty that should prompt you to reconsider your choice of accountant.
Poor Communication
Financial matters are inherently intricate; hence, clarity becomes indispensable. A proficient accountant distills complexity into comprehensibility because understanding empowers informed decisions—your decisions about investments, tax planning, and business expansion plans, among others, hinge on this very transparency. If your accountant avoids answering questions or provides incomplete answers, it’s a sign that you might need to look for a different professional. While this first bullet point may not be caused by dishonesty, poor communication can often be an early indicator of bad advice later.
Lack of Transparency
Transparency is vital in any professional relationship, especially when handling finances. It embodies more than transparent billing practices or detailed reports; it encapsulates honesty regarding capabilities, too: admitting limitations instead of offering unwarranted assurances is emblematic of professional integrity crucial to financial relationships. Additionally, if your accountant refuses to sign the return they prepared for you, it’s a clear red flag. According to the IRS, a trustworthy accountant should always sign the returns they prepare and include their IRS preparer tax identification number (PTIN).
Inadequate Credentials
Another critical aspect to consider is the accountant’s credentials and qualifications. The IRS provides resources on the types of preparers and representation rights, along with the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. If your accountant does not have the right credentials or qualifications, it might be time to reconsider your choice.
Claiming Ineligible Deductions
One of the most glaring signs of an untrustworthy accountant is advising or taking liberties with deductions for which you do not qualify. Hearing the phrase “it’s ok because everyone does it” is a sign to run. This approach might offer short-term financial gain but can lead to severe penalties or audits by tax authorities down the line. An honest professional will guide you through legitimate tax savings without putting you at risk.
Not Advising On Internal Controls For Cash Management:
CPA must insist on setting up good internal control for cash management. Cash transactions pose higher risks regarding accounting transparency and are closely scrutinized by the IRS. A lackadaisical approach towards cash management can easily be perceived as intent to evade taxes.
Ensure your CPA insists on stringent internal controls over cash handling within your organization. This includes mandatory filing of Form 8300 for applicable transactions, maintaining detailed cash logs, and periodic cash counts, among other measures designed.
These steps aren’t merely about avoiding scrutiny from the IRS; they represent best practices that safeguard both you and your accountant against accusations of negligence or intentional fraud. A proactive approach towards these areas signals professionalism and dedication toward maintaining fiscal integrity. If, at any point, you feel that these standards aren’t being met, it may be time to consider looking for new accounting assistance who aligns more closely with these critical values.
Recommending That You Divide Up Cash Transactions
No one wants to be audited. Unfortunately, cash-based businesses are more likely to be audited, largely because of public perception of tax evasion and illicit activities. Due to the higher likelihood of an audit, some accountants may recommend not making cash transactions with your bank over $10,000. Banks must report all such transactions over this threshold to the Financial Crimes Enforcement Network (FinCEN).
Deliberately manipulating transactions (for example, breaking up large sums of money into smaller deposits) to avoid legal reporting requirements—a serious offense known as “smurfing” in banking terms and structuring in legal terms. Any suggestion from an accounting professional that skirts close—or crosses over—to illegality indicates a fundamental lack of ethics.
Encountering these practices should raise immediate concerns; they don’t just pose risks financially but also threaten legal repercussions. Honesty, accuracy, and adherence to laws are non-negotiable qualities in anyone handling your finances. If doubts arise regarding your accountant’s integrity based on these behaviors., It’s likely time to initiate a search for someone whose professionalism remains beyond reproach.
Structuring is a federal offense and can result in severe penalties, including fines, forfeiture of assets involved in the illegal transactions, and even imprisonment.
Not Advising On Best Practices For Maintaining Records
Maintaining comprehensive records is not just good practice; it’s necessary under tax law. CPAs might not pursue every client receipt due to practicality, but they should actively encourage robust record-keeping habits.
Your accountant should recommend or help set up an efficient filing system tailored to your needs—be it through cloud-based solutions utilizing features such as photo captures of receipts, or even establishing a dedicated accounting email address solely for finance-related correspondence.
Not Reconciling Records Across Platforms.
Accurate income reporting is fundamental for transparent financial statements and tax returns. If your business utilizes multiple systems for tracking sales—such as Shopify for e-commerce sales or Metric for analytics—it’s crucial that your CPA is proactively working with you to ensure all records are reconciled across platforms, including QuickBooks. Not doing so can lead to understating income and hefty IRS penalties.
Missing Deadlines
Missing deadlines is a clear sign of a problematic accountant. As the IRS suggests, your accountant should be able to manage your finances efficiently and make sure all your tax obligations are met on time. If they’re constantly missing deadlines, it’s a sign that they might not be the right fit for your business.
Overcharging
Firstly, understanding the standard fee structure within the industry provides a solid foundation. CPA firms typically charge either a fixed rate for specific services or an hourly rate. Researching average rates in your area for comparable services offers insight into reasonable pricing. If your CPA’s fees significantly exceed these benchmarks without clear justification, such as specialized expertise or additional value-added services, they may be overcharging.
If your accountant’s fees are based on a percentage of your refund, this should be an immediate red flag.
A reputable CPA should provide detailed invoices explaining charges incurred for tasks performed on behalf of your business. If descriptions are vague or if it feels like pulling teeth to get itemized breakdowns, this opacity is cause for concern; it hampers your ability to assess the fairness of charges applied.
Final Thoughts
Recognizing these red flags can help you avoid the pitfalls of bad accountancy advice. Remember, your accountant should be a trusted ally who provides accurate, timely, and honest advice. If you spot any of these signs, it’s time to reconsider your choice and find an accountant who truly understands your business and can provide the expert guidance you need.
