Risk of hefty penalties if you don’t
There are plenty of war stories about recordkeeping blunders. Think of offices crammed with paper, ‘lost’ documents, fireplace filing systems and online voids.
Section 194(1) of the Companies Act 1993 requires boards to keep correct accounting records. Records are supposed to ‘speak for themselves’ (1) and allow the company’s financial position to be determined at any time with reasonable accuracy. Failure to keep proper records can badly hurt your business.
In 2018, a director was found personally liable for nearly $500,000 as a result of his ‘egregious’ failure(2) . The court found that ‘not only were proper records not kept … bank accounts were intermingled and monies that were the assets of one entity were … paid into the bank accounts of another entity’(3) . The judge also confirmed that delegation to an unqualified and inexperienced third party is unacceptable.
Not meeting minimum employment standards
Many employers have faced fines for failing to meet minimum employment standards; a number of these offenders are working in small to medium enterprises.
In 2018, labour inspectors found that 28% of inspected farms were not meeting their recordkeeping obligations; this resulted in total fines of $11,000. Employees did not have agreements and employers had missing wage, time, holiday and leave records.
Every employee must have an employment agreement. There is no substitute for a professionally-drafted agreement. At business.govt.nz the Employment Agreement Builder can generate free standardised agreements designed to reflect key factors. While this is a useful tool and is a good starter, we strongly recommend asking us to help draft your employment agreements as they will be custom-made to your particular organisation.
Last year, Aulack Enterprises Ltd faced liability of up to $320,000 for breaches, ultimately paying wage/holiday arrears, $30,000 penalties and court costs (4) . This figure does not include the costs of the advice from Aulack’s professional advisors or the time, stress and inconvenience of the litigation.
Businesses must keep records of invoices, receipts, wage books, petty cash, banking records, asset registers, depreciation schedules, vehicle mileage and claimed business expenses.
A tax invoice for expenses under $50 is not needed, but if you are GST-registered, you must keep records that can support an expense claim. At the very minimum, you should record the date, description, cost and supplier for everything you buy. Inland Revenue also recommends retaining any calculations used to complete your tax return, such as for working out a home office claim.
Keeping good records should be part of your day-to-day business activities, otherwise you risk some hefty fines – and that’s simply not worth it.
(1) Maloc Construction Ltd (in liq) v Chadwick (1986) 3 NZCLC 99,794 at 22
(2) TGM Trading Limited (in liq) & Anor v Drever  NZHC 1788 [18 July 2018]
(3) Drever at para 13
(4) Thomas v Aulack Enterprises Ltd  NZERA Auckland 156