Accounting firms in subsidy spotlight
Questions of trust and good faith emerge after 19 of the top 30 accounting firms in New Zealand claim government wage subsidies. John Anthony reports.
Aprominent accountant is questioning how some of the country’s biggest law firms could have qualified for the big wage subsidies they have claimed. Accounting firms received millions of dollars in the first round of Covid-19 wage subsidies, including one firm which claimed a $3.9 million subsidy as ‘‘a precautionary measure’’ before paying it back because it was not required.
The Government-funded wage subsidy was available for businesses which experienced a minimum 30 per cent decline in revenue over a month, when compared with the equivalent month in 2019, and that decline was related to Covid-19.
The Government paid out more than $11 billion in the original wage subsidy scheme, which covered each employee at eligible companies for 12 weeks.
It has extended the scheme by eight weeks for businesses which had experienced a revenue drop of 40 per cent or more. They must reapply for the next payment.
The extended subsidy is expected to support up to 230,000 businesses and cost the Government $3.9b.
The Ministry of Social Development has described the subsidy scheme as ‘‘a high trust system aimed at ensuring money reaches workers and businesses as soon as possible’’.
The Government said it was auditing businesses and those found to have abused the system could face criminal prosecution.
In early May there was criticism of big law firms claiming payouts under the original subsidy scheme.
Among the law firms, Bell Gully claimed $1.8m for 260 employees; Simpson Grierson, $2.3m for 335 staff; Duncan Cotterill, $1.4m for 215; Lane Neave, $1.1m for 162; Minter Ellison Rudd Watts, $2m for 300; and Meredith Connell, $1.6m for 236.
After a public outcry, many – including Minter Ellison Rudd Watts and Simpson Grierson – said they would pay back the subsidy.
Now, leading accountant Bruce Sheppard, whose firm Gilligan Sheppard did not claim the wage subsidy, said he struggled to see how accountants would be under enough stress as a result of Covid-19 to qualify.
One of the world’s largest accounting firms, Grant Thornton, claimed $1.42m for 204 staff. Australian company Findex, previously Crowe Horwath, claimed $3.9m in wage subsidies but repaid it a few weeks ago, a spokeswoman said.
‘‘It was originally claimed as a precautionary measure but later deemed not required so immediately repaid,’’ the spokeswoman said.
Sheppard, who was made an Officer of the New Zealand Order of Merit in 2017 for services to business, said since having moved to remote working as a result of lockdown, his company’s productivity was up.
He said inquiry rates, and the need to support clients, had risen, which would ultimately lead to revenue later.
‘‘I struggle to see that accountants would be under any significant stress at all unless they had very weak balance sheets,’’ Sheppard said.
Weak balance sheets broadly came down to too much debt and not enough equity, he said. High partner drawings could also be a factor.
Since the Covid-19 pandemic Gilligan Sheppard’s fee revenue had declined slightly but was not down anywhere near 30 per cent, he said.
In 2019 Chartered Accountants Australia and New Zealand supplied the Sunday Star-Times with a list of the top 30 accounting firms in New Zealand.
The Covid-19 wage subsidy employer search tool shows 19 out of those 30 businesses claimed a wage subsidy for staff, in some cases more than $1m worth.
Many of the companies appeared to be in growth mode, claiming subsidies for more staff than they reported they had in 2019.
Sheppard said accountants and lawyers were professionals in a position of trust, and he expected that firms in those industries which claimed the wage subsidy would be subjected to a Government audit.
‘‘They are at the core of helping New Zealand business survive through this, and they would be expected to have behaved in the utmost good faith in what is a high-trust regime.’’
Moore Markhams has nine offices around the country, four of which claimed a wage subsidy worth a combined $953,000 for 138 staff.
In 2019 Moore Markhams said it had 41 staff and made $30m to $40m in revenue.
Large accounting firms PwC, Deloitte, KPMG and EY, which combined employ nearly 5000 staff and made revenue of close to $1b, did not claim the wage subsidy.
A PwC spokeswoman said it was not eligible for the wage subsidy and did not apply for the scheme.
‘‘Like all New Zealand businesses we are managing our way through the uncertainty caused by Covid-19 and have seen a hold on some transactional and advisory work during the lockdown period.’’
It continued to see strong demand in some other areas, she said.
‘‘Over the past two months we have helped many of our clients respond to immediate issues around cashflow, liquidity, looking after their people and stabilising their businesses.
‘‘We are now working with both public and private sector clients on restarting operations, strategising for recovery and rebuilding the economy.’’
Baker Tilly Staples Rodway claimed $2.5m for 368 staff in its offices in Auckland, Tauranga, Taranaki, Hawkes Bay and Waikato. It had 444 staff last year and posted revenue of $50m to $99m.
BDO, which has 15 offices around the country, had 821 staff last year and made up to $150m in revenue. It claimed a wage subsidy of nearly $800,000 for 111 employees in Tauranga, Rotorua and Northland.
BDO Tauranga managing director Fraser Lellman said supporting its clients through Covid19 alert levels 4 and 3 was paramount.
Staff were also a key focus and it was committed to keeping all its team in place coming out of the lockdown and protecting current employment terms as far as possible, he said.
BDO was a network of independent member firms.
‘‘Our policy is that managing partners of member firms should make decisions and take actions based on their circumstances, in the best interests of their clients and people,’’ Lellman said.
‘‘They have the flexibility to act to ensure they can maintain a high standard of professional service for clients while safeguarding the working conditions of our people.’’
Christchurch firm Nexia had 15 staff last year and revenue of $10m to $20m. It claimed a wage subsidy of nearly $450,000 for 64 staff.
Bellingham Wallace had 32 staff in 2019 and revenue of up to $10m. It claimed a wage subsidy of $279,724 for 41 staff.
Hayes Knight had 45 staff paid just over $300,000 in wage subsidies. In 2019 it had 32 staff and revenue of up to $10m.
Moore Markhams, Grant Thornton, Baker Tilly Staples Rodway, Nexia, Bellingham Wallace and Hayes Knight did not respond to a request for comment.
Peter Vial, who heads the New Zealand part of Chartered Accountants Australia and New Zealand, said its members and member firms worked throughout the country and across all sectors of the economy.
Like other New Zealand businesses they were affected by Covid-19 in different ways, for example depending on their locations and exposure to different business sectors, he said.
‘‘Covid has had a significant impact on the revenue of some chartered accounting firms,’’ Vial said. ‘‘We are aware that while chartered accountants are working very hard with their clients, it is not always certain that they will be paid.’’
Like all businesses receiving the wage subsidy, chartered accounting firms were subjected to review and audit of their applications.
CAANZ had reminded members of the need to apply an ‘‘ethical lens’’ to applications for government support on behalf of their own firms or their client’s businesses, he said.
‘‘Rightly, there is a higher level of public expectation regarding the behaviour of professions such as chartered accountants.
‘‘As a professional body we hold to account members who have breached our code of ethics.’’
‘‘I struggle to see that accountants would be under any significant stress at all unless they had very weak balance sheets.’’ Bruce Sheppard, above