Archive for the ‘Professional Negligence’ Category

During my talks on “How to avoid professional negligence claims (or worse)” I explain that sometimes the cause is wanting to be ‘too helpful’. In such cases the accountant unwittingly oversteps the mark due and renders themselves liable to prosecution – which is clearly worse than being subject to a negligence claim.

I was reminded of this when I saw a report last week of a case about an (unqualified) accountant from South Tyneside who was jailed for his part in a £2.24m loan scam.  Paul Robertson provided forged documents from his South Shields offices to mortgage broker Martin Watson. Mr Watson used this documentation to falsify over 20 application forms he submitted for unsuspecting clients. The loans in question amounted to around £2m and generated substantial commissions for Mr Watson.

Mr Robertson apparently asked his staff to produce pay slips and P60s for Mr Watson’s clients. When Mr Robertson heard that the police were investigating, he told staff they should deny ever having done this.

The report references the Judge’s acknowledgment that Mr Robertson had played a lesser role in the fraud and had been running his business successfully despite having no formal qualifications.  Apparently the judge told him: “You say you were fearful of your co-accused, but you did have a choice to refuse his requests for false documentation.”

I wonder how often accountants do what they can to help a client only to find that they have started down a slippery slope?

Most people prefer to avoid thinking about this. Everyone does their best of course – though a little thought often reveals that they are taking more risks than they would choose to do so. And the public are getting more litigious – especially if making a claim enables them to avoid paying for advice they didn’t like.

When I present my talks on ‘How to avoid negligence claims‘ I often start by asking the attendees if the thought of a PI claim ever keeps them up at night. Most say ‘no’, others reply ’sometimes’ and a few answer ‘yes’ and add further comments:

• · Convinced my knowledge is not as uptodate as it should be but working on it
• · Anyone doing a proper job will be sued at some point in time;
• · Could lose everything;
• · Failure to recognise a claim or a potential claim;
• · Fear of getting it wrong;
• · I have discovered some ‘Donald Rumsfeld’ type “unknown unknowns”;
• · I know I don’t know everything!
• · Because even though conscious of PI issues I am always prone to human error;
• · Due to the ever-changing laws, regulations and the purposive construction of the law;
• · In case I do something wrong that I’m not aware of.
• · Lack of internal controls;
• · Professional image, loss of clients, disciplinary issues with the Institute;
• · Reputational impact and interpretation of advice;
• · Some clients may misinterpret the advice we gave them;
• · Sometimes – if I know I have made a mistake.
• · The law is changing very rapidly and it’s difficult to keep up to date;

I accept that there is little point worrying about something over which you have no control. Remember the old adage: Worry is like a rocking horse; it gives you something to do but doesn’t get you anywhere.

The key point I am driving at when I ask the question during my talk though is whether you are aware of the risks you run in your practice and are taking an appropriate amount of precautions to limit the downside. As some of the respondents implied above, you cannot be in practice, whatever your profession, and not run the risk of making a mistake that costs a client money or of a dissatisfied client alleging that you have been negligent. Equally you cannot operate effectively if you are constantly worried about these risks.

In my talk about How to avoid professional negligence claims I encourage attendees to recognise that the risk of problems arising can be distinguished between those likely to have a big impact and those that will have little impact. Equally some problems are more likely to occur than others. Your response to different risks should depend upon their potential likelihood and their potential impact.

Readers are welcome to attend my next half day seminar on Friday 19 February: How to avoid professional negligence claims. And if you book this week you can avoid the late booking fee too!

This blog has been a labour of love for well over 3 years now and contains in excess of 300 posts. Many have either come from my talks or have been incorporated into my talks and seminars. As 2009 draws to a close, you may be interested to see this personal choice of my posts over the last 12 months.  This has been an interesting review for me as it’s revealed a different way of categorising the subjects I have enjoyed writing about.

Summary

My output here dropped significantly as I only managed 60 posts in 2009.  I don’t feel bad about that though as I’ve also written well over 100 pieces for the TaxBuzz blog and posted almost 150 items to the Accountant jokes and fun blog.

Commenting on news items

The year started with me questioning whether it was true that “One in four firms expects to lose clients” and that there would be “A flood of mergers in 2009″ I also suggested that Clients WANT more support in these trying times.

Other such posts in 2009 have addressed:

• The future of compliance services for accountants
• The future of auditing and assurance services
• Two new accountancy consolidators by 2011? I don’t think so

Conventional wisdom

Another theme on the blog this year was to challenge conventional wisdom:

• Why bigger isn’t always best;
• Are your fees high enough?
• What do accountants sell? The answer is NOT ‘time’; 
• Do you offer a service guarantee? I bet you do;
• Limited Liability Partnerships – additional protection?
• Do your timesheet procedures reduce new fees?
• Accountants’ adverts are not working any more
• “Added value” – what do you mean?
• Not all Accountants are business advisers

Professional negligence

One of the most popular and frequent talks I’ve presented to groups of accountants over the last few years has been on the risks accountants run and how they can reduce these without tying themselves in knots. Among the related items I’ve posted to the  blog this year have been posts titled:

• Do you treat clients like lab rats?
• What is it that can go wrong?

Face to face networking

The importance of effective networking skills is generally recognised but how do we improve our skills in this area? Here’s a selection of my posts offering tips and advice on this subject in 2009:

• Networking strategies for accountants
• Networking strategy – plan your follow up beforehand
• What does Networking have in common with inheritance tax planning?

Social networking

A year ago I wrote a piece explaining why, in my view, Twitter is not for accountants. What I was saying was that accountants need not bother with twitter especially if they think of it as a route to securing new clients. Since then twitter’s popularity has increased and I’ve noted more and more accountants are experimenting with it. As a result I then wrote a number of more positive and helpful pieces which are summarised on the twitter page of this site.

Other related posts this year included:

• “Social” vs anti-social networking
• Is it worth the time it takes to learn how to use social media?

Top tips

I’ll complete this review of blog posts in 2009 with these reminders of key tips for accountants who are keen to be more productive and more successful:

• Expect more clients to seek advice on Tax Credits
• Why your clients are indifferent and don’t recommend you
• 7 ways to ensure your pitch is not a waste of time
• Why aren’t more accountants talking about LLPs with clients?
• Advising your most important client
• 3 time management tips
• Two top interview tips
• Bookkeeping services and options
• Do as you would be done by….

With all best wishes for the New Year.

A driver who drove his car to the edge of a 100ft drop after he “slavishly” followed its SatNav instructions has become one of the first motorists to be convicted for placing too much trust in his SatNav.

When I noted this news story today I was reminded of a comment I make during my talks about how to avoid professional negligence claims. It’s in the context of evidencing ‘good practice’. One way of doing this is to comply with your professional body’s Membership Handbook. In normal circumstances you might expect that if you can show that your actions were in accordance with the guidelines contained in the Handbook you would have a strong defence against allegations of professional negligence. But this is not the whole picture.

During my talks I focus more on the practical and commercial issues  than on the legal ones as I have an accountancy and tax background rather than a legal one. In this context I make the point that, whilst the position is not free from doubt, slavishly following guidance that is patently wrong may not be a good enough excuse. There is some precedent for this in the world of medical negligence.

We need to recognise that some of the guidelines in membership handbooks may be out of date – and that the Courts will expect professional advisers to apply common sense. The test will be what would a reasonably competent accountant have done in the circumstances. If this would differ from the membership guidelines then you should have done so too. It seems the same is true for drivers – is it reasonable to follow your SatNav instructions if they are clearly wrong? The report today suggests the answer is ‘no’ – and you can’t get off by blaming your SatNav.

I don’t imagine that the recent ‘SatNav’ case will figure in future courses about professional negligence but it is a useful reminder that we are all expected to apply common sense rather than slavishly following generic guidance that may be out of date, irrelevant or dangerous.

It’s almost a year since the professional bodies published their updated guidance on engagement letters for tax work. This was the culmination of a thorough review by a working party that I was proud to chair on behalf of the contributing bodies: ICAEW, ICAS, ACCA, CIOT, ATT, IIT, CIMA.

I wrote a number of articles on the subject for the professional press and online forums. eg: AccountingWeb and Tax Adviser. I also explained our approach in a posting on the TaxBuzz blog.

And most of the bodies published the updated guidance on their websites for members. More recently this has been updated to reflect one last schedule that we added for those who want to advise on tax credits. (Incidentally I’ve explained elsewhere on this blog why I think it’s important to at least cover the basics on the subject of tax credits).

The reason for this post now is that for whatever reason I have started to receive more requests for links to the online guidance. And some people are asking for guidance as regards non tax related issues too.

Rather than keep cutting and pasting content I though it would help to put all of the links in one place.

• ICAEW – Tax Faculty – TaxGuide 02/09 - Engagement letters for tax practitioners (This contains the latest guidance as issued by my working party in August 2008 as updated in March 2009)
• ICAEW – Library - Engagement letters – sources and samples

I have also included  a link here back to a recent piece I wrote about disengagement letters as this may also prove useful.

Over the years I have collected dozens and dozens of stories of what it is that has led to problems for accountants. Such examples help inform my talks about how to avoid negligence claims. It’s also worth recognising how easy it is for things to go wrong; after all they do say that forewarned is forearmed.

So here is a selection of real life situations that have led to negligence claims against accountants. Don’t get caught out yourself:

• Unexpected obligations to overseas tax authorities
• Difficulties with liquidators due to auditors being officers of the company
• Failing to provide all relevant information to successors
• Failure to evidence independent advice as a trustee
• Difficult clients not providing all relevant information
• Nightmare clients who are not clear as to what they want
• Continuing responsibilities after ceasing to act for a client
• ‘bad’ partners in the firm
• Counter claims when pursuing outstanding fees
• Going beyond agreed scope of work and level of own competence
• Failure to spot employee fraud
• Clients who lose confidence due to poor communication
• Lack of clarity re scope of work and responsibilities
• Adverse media reports after disgruntled client leaves
• Casual relationships
• Third party (or interested party) putting pressure on client to complain
• Failing to spot technical issues
• Valuation related work when subsequent sale suggests a very different figure
• Clients looking for someone to sue

I have also addressed related points in previous posts on this blog – such as

• Expect more clients to seek advice on Tax Credits;
• That key term in PI policies
• Ten top tips to avoid professional negligence claims
• Are you at least ‘reasonably competent’?

If you’d like to know more about How to avoid professional negligence claims and protecting your practice from negligence claims and worse – then you may want to attend my next seminar on the subject.  Full details here.

If you’re unable to get to London for the seminar you can instead access the slides and notes from an earlier version of the seminar by following this link.

And if you have any examples of claims that you’re willing to share do please add them as comments to this blog post.

Let’s face it, few accountants have detailed procedures in place to ensure they do all they need to do when they lose a client. The simple reason for this is that it doesn’t happen often enough to warrant a detailed procedure and even when it does occur there’s rarely a problem.

The larger firms lose more clients across the board and tend to have procedures in place to reduce the prospect of problems arising down the line. One of these procedures is a proforma disengagement letter.

This is a concept that I frequently advocate during my talks on ‘How to avoid professional negligence claims and worse’. Simply stated the use of such letters can help minimise the prospect of continuing liability to ex-clients and also to those who do not reply to requests eg: for information required to complete tax returns or accounts.

What should be addressed in a disengagement letter? I suggest the following:

• A summary of services provided up to the date of ceasing to act;
• A note of any further action to be taken by the adviser;
• A note of any outstanding matters that either the ex-client or the new advisers will need to address;
• Details of any impending deadlines and the action required;
• The adviser’s willingness or otherwise to assist the new advisers resolve outstanding issues with HMRC or others; and to provide copy papers to the new advisers or to allow them access to files;
• If relevant, details of any outstanding fees; and finally
• A note indicating that the adviser has told HMRC that he is no longer acting for the client and that until further notice all correspondence should be sent only to the taxpayer.

Anything else? Please share your veiws as comments on this blog post.

Two of the advantages of operating through the medium of a Limited Liability Partnership (LLP) are that no personal liability falls on a member of a limited liability partnership for the contracts or debts of the LLP and there is no joint or several liability for the negligence of any other member.

It seems reasonable therefore to discuss this option during my talks about ‘How to avoid professional negligence claims and worse’.

It is worth noting that the key advantage of an LLP as compared with a traditional partnership is that the members of the LLP have the protection of limited liability if something goes wrong with the business, in much the same way as do shareholders in a limited company. For many liabilities (eg bank finance and rental obligations) personal guarantees may be required but this rarely occurs as regards the prospect of claims being made re negligent advice.

In practice a member of an accountancy LLP is in no better and no worse position than a director of a limited company of accountants. But they are in a better position than the partners in a conventional partnership.

However, the protection of limited liability is not the main reason for firms choosing to convert to LLP status. It is more the fact that an increasing number of younger ambitious prospective partners are reluctant to take partnership in conventional firms where they are taking on joint and several liability with the older partners. Given the choice between partnership in such a firm or in an LLP, all else being equal they choose the LLP.

Does this accord with your oewn experience? Please add your veiws as comments on this post.

Probably the most sensible thing any adviser can do is to recognize their limitations.

Most accountants are like GPs. Great at dealing with day to day issues. Every now and then though when you visit the doctor they recommend you see a specialist. Indeed you’d be very worried if the GP suggested you hop up on the bed so that he can remove your kidney, operate on your back, undertake a brain scan or whatever.

In the same way there is no shame in admitting to clients that occasionally you have to involve other specialists to ensure that the client gets best advice. This will invariably enhance your relationship with clients than either of the alternatives:

• Avoiding the issue – to avoid revealing your lack of knowledge/experience;
• Guessing and using the client as a lab rat (test subject) and risking the consequences of giving incomplete or incorrect advice

When you need a second opinion or want to refer work to a specialist, obviously I would like you to choose one of the vetted independent specialist tax adviser members of the Tax Advice Network.  The options however include:

• Tax expert colleagues in the office
• Colleagues in other offices
• Tax expert friends at local events
• Professional fees insurer
• Tax Faculty referral scheme
• Business Mentor/coach
• Larger accountancy firms
• Larger tax consultancy
• Independent external tax support – such as Tax Advice Network

It’s also worth noting that the Guide to Professional Conduct, applies to all members of the largest professional tax and accountancy bodies. It states that:

“Members will from time to time find themselves having to advise on matters which require specialist knowledge. In such circumstances they should be careful not to go beyond their own level of competence and, if necessary, should seek help from a specialist in the field”.

One of the pressures that all ambitious accountants endure is the need to advise on issues that do not arise every day. The more experience you have the more confidence you gain to know whether or not you have enough knowledge to give the advice without double checking it’s right.

Double checking might simply involve checking the rules in a book on the shelf, online, asking a colleague or going outside the firm to an independent specialist.  There is no shame in not knowing. You cannot know everything and it’s a mistake these days (and probably always was) to claim to be the font of all knowledge on any accountancy or tax related subject. None of the real experts would make such a claim so why should a ‘generalist’ feel it necessary to do so?

If you’re not sure though, here’s a simple test.  Pretend the client seeking your advice is a close family friend, your mother, brother or someone else you really care about.  Would you be happy for them to act on the basis of the advice you are giving?  If you’d want to double check before letting them follow your advice then you know you should double check regardless.

I’ve addressed related points in previous posts on this blog:

• Are you at least ‘reasonably competent’?
• What sort of advice do you give? Specialist, Compliance or Dangerous? (part one)
• What sort of advice do you give? Specialist, Compliance or Dangerous? (part two)
• Generalists – watch out!
• The trusted adviser who couldn’t be trusted
• What does it take to become a trusted adviser? (part one)
• What does it take to become a trusted adviser? (part two)

And if you don’t know where to turn when you require specialist tax input, I’d have to recommend the Tax Advice Network.