Life is tough on the front line of accountancy. For more than five years, our intrepid correspondent has been bringing us news and views from a typical West Country practice.
Practitioner's Diary: The engagement letter challenge
They may be essential, but they're still not much fun to produce, says our West Country general practitioner in his thoughts on letters of engagement.
* * *
29 February - No more new engagement letters this month, which can only mean one thing - we're not winning enough new work! Spring is around the corner, time to think about marketing and practice development.
* * *
27 February - Having said all this, the production of engagement letters, whatever their format, is still a major chore that I know many practices still put off. Some firms now issue new engagement letters annually, setting out their terms for the coming year on the completion of the last year's work. Others are dragging their heels in issuing any letters at all to existing clients, even if they are trying to issue them to new clients. I assume their older clients are not suing them or arguing over their terms, becasue they haven't got much to back them up!
But how do you go about generating bulk engagement letters? There are a few software packages out there that claim to automate the process, but we have stuck with standard templates and a checklist that professional staff can give to typists to tell them which paragraphs to add or omit, with a few blocks of customisable text. It may not be ideal, but if we had to generate them from scratch each time we probably wouldn't bother.
Could we delegate the whole task to the support team? Possibly, but I think there's enough technical and personalised text in letters of engagement that require input from someone on the professional side.
* * *
25 February - Back on engagement letters again today, having issued a few more this morning. Like many firms, we use a template to prepare our engagement letters. So why don't we have a checklist or questionnaire to encourage clients to specify what they expect from us? I don't think we want to put ideas in their heads, but I do think we should ask them to spell out what they expect, what is their definition of a good service, what do they take as a given?
This would be a good opportunity for firms to segment their clients. If clients want a Rolls Royce service they should be prepared to pay for it. But many will be happy with a Mondeo! While there may be a minimum level of service that you feel all clients should expect, irrespective of the fee, there may well be some extras that you could - and should - charge extra for. If you're like me and many other small practitioners you're probably leaving cash on the table when you agree client fees. A more detailed 'service level agreement' to supplement the traditional letter of engagement could be a great help here.
Or has anyone got a better idea? Let me know.
* * *
22 February - What's happening at HMR&C at the moment? I have had calls from two clients this week who have just received £800 penalty notices for failing to file the 2006-07 P35. Both paid substantial PAYE and NICs during that year, so the Collector can't argue that they didn't know if they had any employees. Why didn't they chase these returns last summer? I imagined they would be on you like a ton of bricks in June, but obviously not.
Cynics would suggest that they deliberately keep quiet in order to maximise the penalty! It makes you wonder.
I'm now waiting to see how long it takes for them to work out some flimsy reason why the late filing must have been our fault.
* * *
20 February - I was spending an idle hour today drafting a few engagement letters. I can't believe how long it takes to do these - and we use a simple one or two page checklist that the admin team use to produce the full letter from a colour-coded template. And we attache a double-sided T&Cs sheet with all the standard blurb. Goodness knows how long some firms take to type each one from scratch!
Anyway, it occurred to me that the time-honoured engagement letter is a bit of a one-way document. We tell the client what we are going to to, what our expectations are, and what they have to do in return. Nowhere does it record what the client's own needs and expectations are!
Research, and books by people like Ron Baker tell us that what clients want most is:
- No surprises - either tax or accountancy bills;
- A timely service;
- Personal attention, preferably from the same person each time; and
- Easy access to someone at manager/partner level.
I wonder how many readers commit to any or all of these in their engagement letters?
* * *
18 February - In case anyone's wondering, the third fraud case I can remember was a bookkeeper who either forged the directors' signatures or passed cheques for payment with only one signature when the mandate required two. The police were called in and she ended up behind bars. Interestingly, the bank reimbursed our clients in full within a matter of a few weeks, no questions asked!
* * *
15 February - Thinking about the recent client fraud reminds me of the last one. Since I qualified in 1979 I can only remember three, so it's not bad I suppose.
The previous case concerned overstatement of sales by a sales manager who seems to have had some sort of breakdown. Believing his boss had it in for him, he started falsifying sales in order to meet his sales targets. Somewhere along the line I think he took a bit of cash personally, but on the whole his actions simply overstated sales in the audited (!) accounts and seriously damaged the company's reputation. As it was wholesaling to a relatively small number of major customers, the damage took years to repair.
Anyhow, the manager confessed to most of it in the end. However, what still troubles me is that our pretty thorough sales and debtors audit had failed to detect the problem! The sales manager had issued incorrect invoices to a number of customers - invoicing for 100 times the correct quantity for example, or sending duplicated or unrequested consignments. He managed to cover his tracks by persuading customers to accept the goods as an advance delivery for future months, or giving some plausible excuse which deterred them from following up their complaint with the accounts department. At least two of them then replied to our debtors circularisation and agreed balances which they knew were wrong!
This was a tricky one. We had a solid paper trail, third party confirmation and convincing explanations from a senior employee who undertood and controlled the whole sales process. I am not sure if we could have done any more, but it's frustrating to think that the audit didn't (and probably couldn't) detect fraud in this case.
* * *
14 February - Love is in the air - somewhere else! Down here I'm still in mourning for the impending demise of Planet Rock. Surely someone is going to save the profession's favourite radio station?
Meanwhile my least favourite client has just been given the heave ho. I was seriously thinking of sacking him last year after all his whining about the service and fee, but after Christmas we had an opportunity to give him a good service and exceed his expectations (or so I thought). Did I get any gratitude? Nope, just a very rude and ungrateful email complaining about the accounts and asking for another fee reduction.
I'm not in the mood for being messed about at the moment. I just issued him a credit note for the full fee, which wasn't that much, and told him to go forth and find another accountant to do the accounts to his satisfaction!
I'm on a roll now. Who else don't we want to act for this year?
* * *
12 - I can't believe the news. In fact, we're all in a state of shock - yes, Planet Rock the digital radio station is going to close at the end of March unless a buyer is found!
Now, I know from Any Answers threads on this site that as soon as music is mentioned the middle-aged rock fans that seem to make up a sizeable proportion of the profession suddenly get excited. So come on everyone, let's get behind Planet Rock and keep it on the air. Maybe a consortium of accountants could buy it. Or perhaps Sage or CCH could be persuaded to add it to their empires.
If not, Saturday morning in the office will be a dismal event after March!
Any and all suggestions welcome. Meanwhile I'm off to Ticketmaster to see if I can get some tickets to see the Eagles at the O2 Arena!
* * *
8 February - Not a great end to the week. One of my clients has lost an unquantified - but large - sum of money at the hands of an unscrupulous employee. The trouble is, try as I may I can't see how we could have helped to prevent it apart from encouraging the MD to tighten up some of their controls.
In retrospect I suppose they were asking for trouble. Being totally sales-oriented, the MD delegated all the financial stuff to a key employee. Unfortunately it got to the point where the MD was almost never in the office, so the employee was entrusted with signing cheques and making online payments, purchase invoices were never passed for payment or scrutinised by anyone else - and in the end this employee pocketed a pretty significant sum by making cheques out to himself but posting them to the accounts as supplier or PAYE payments.
Clearly this wasn't going to last forever without a degree of 'teeming and lading' that would have been beyond this person, but it looks like it went undetected for about nine months. Embarassingly, we helped with quarterly management accounts and VAT returns and never caught a whiff of this!
One of the biggest debts our client has been left with is to the Collector of Taxes. The trouble is that since this relates to the current tax year, there are no statements or other third party evidence to show what the Collector has actually received yet (nothing, in fact), but since the cheques were drawn for the correct amounts, at the correct time, and posted to the PAYE account we never suspected a thing. The client wants to know whey we didn't spot this ourselves. I am not sure we would have done before April this year when the P35 goes in!
* * *
5 February - This month looks like a good time to regroup, reflect and plan ahead. There are two jobs that have been on the back burner for some time that I want to move forward:
1) My office is a tip! We invested in a sofa and coffee table some time ago so I could have client meetings in it, but the sofa has become another place to stack files (when the floor is full) so it's far from presentable. I need to look at my filing and paper management and see if I can't make better use of the shelves and filing cabinets and keep at least half the room tidy for visitors.
2) This is a good month to think about marketing. I have kept attendance at networking events ticking over but I need a plan for the year ahead now. Can we get more of our people out in BNI, 4Networking, etc? What about seminars and such events - these can be a great way to reinforce relationships with existing clients and attract new ones. Then there's the annual review and spring clean of the firm's website and a review of our newsletters, especially our much-under-utilised email newsletters - I just can't persuade colleagues to provide me with email addresses for clients and contacts.
* * *
4 February - After a long weekend - yes, I had the day off on Friday 1st! - the office seems a much calmer, more orderly place this week. Desks have been cleared, files have disappeared, and the tax team have turned their attention to getting bills out. Looks like January's fee target will be easily met without much assistance from me! Unfortunately that probably blows my chances of getting the same budget for 2008/09.
* * *
How was the self assessment deadline for our practitioner? To find out, read his January 2008 diary.