Practitioner's Diary: The engagement letter challenge

The Practitioner
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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.

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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.

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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.

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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.

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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.

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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?

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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!

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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.

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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?

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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!

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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!

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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.

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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.

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How was the self assessment deadline for our practitioner? To find out, read his January 2008 diary.


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07th Mar 2008 13:09

planet rock
I have to say that the comments on this article have drifted from the main issue - saving planet rock. Mornings will not be the same unless they are shared with Alice Cooper.

I agree that a consortium of accountants should buy it - singlehandedly it will improve our social standing in the world. However, sadly I suspect the economics are iffy - the owners put money in and get rock music out.

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03rd Mar 2008 08:45

ML Regs and engagement letter updates

The MLR 2007 now require that customer due diligence (which has sort of replaced KYC and includes confirming the identity of the client and any beneficial owners - i.e. those with a more than 25% interest in the client) is applied to existing clients.

If you have not yet confirmed the ID of an existing client (or if his / her address, name. etc have changed since you undertook your last confirmation) then when you update your engagement letter would be a good time to obtain / update the client ID documentation.

It may also be a good time to tell the client about all your wonderful range of added value services - but I claim no expertise in marketing!


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01st Mar 2008 15:35

agree re P35
they send you out a penalty for 4 mnths at a time without previously letting you know that they havent got their return, so presumably this is a cash rasing exercise.

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By neileg
21st Feb 2008 10:09

Daftest fraud
I was involved in a case where an employee used Tippex to blank out the payee name on cheques and then wrote in her own name and banked them! The bank seemed to think it had acted reasonably in accepting these cheques...

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18th Feb 2008 11:16

Re 15 February diary

The available evidence suggests that only a minority of frauds detected are brought to light by audit (whether internal or external). Often fraud is discovered by chance.

Sometimes fraud comes to light only because it has grown so large that it has a significant impact upon the victim which cannot go un-noticed.

The practitioner does not say what actually brought either of the frauds he mentions to light. It might be interesting to know!

I can think of examples where fraud has come to light as a result of: (i) a tax enquiry resulting in an examination of the (fraudulent) director's personal bank statements (which showed deposits of cheques which should have gone to the company); (ii) the bank 'bouncing' a company's VAT Return cheque when there was "always plenty of money in the account" (the MD rang the bank to complain only to find that the finance director had withdrawn all the money from the account months earlier); (iii) in a large company the expenditure under a particular head being very much in excess of the budget (due, it turned out, to the submission and payment of bogus 'invoices from suppliers' generated by the budget-holder with the aid of a photocopier and a bottle of correcting fluid).

As it happens only one of these three cases was reported to the police - and that did result in the fraudster going to prison.


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18th Feb 2008 10:50

Response to David Honneyman


I don't think any statistics are reported as to how many SARs are looked at.

The 2007 Annual Review of the SARs Regime (published last November) commented that "use of SARs by end users [i.e. the police, tax authorities, etc.] remains patchy with significant areas of weakness".

It is also the case that "SARs usage is not as regular and widespread as it should be" and "end users do not yet have the management information systems in place to enable them to accurately gather information on the use made of SARs".

However the issue I was referring to in the case mentioned by AWEB's Practitioner was not that his SAR would not result in an investigation, but that the client's report to the police concerning the theft by his employee might not result in a police investigation.


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17th Feb 2008 21:40

Money Laundering statistics
You say that the police may not take up this case. I began to wonder how many SAR's are actually looked at.

Approximately, how many money laundering reports are actually investigated by the appropriate authorities? In absolute numbers and by percentage of reports made? By accountants and other reporting organisations?

If you do not have the information to hand could you point me in the right direction on the internet?

I suspect that the numbers will be disappointing low.

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By refs8
15th Feb 2008 13:41

Horid clients
I have gone one better and even torn the cheque in front of a client and sacked him - felt great !!

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12th Feb 2008 21:11

Theft by client's employee

Immediately report the theft to your MLRO (and he must to report it to SOCA) under s 330 PoCA 2002 and MLR 2007.

The next point is what has the employee done with the money? Does he have any assets which would be recoverable if the employer launches a civil claim against him? Ought the employer to be attempting to get an interim order from the High Court to stop him dissipating any assets he has? (There may be a need for urgent action here! This needs a solicitor, preferably one with experience of obtaining such orders.)

Has the matter been reported to the police? They may or may not take action depending upon the amounts involved and the strength of the evidence. If you can persuade the police to take action that may eventually (i.e. in a year or two) help in getting some money back. But don't expect the police to be keen to act (such cases are, from their point of view, fraught with difficulty, expensive to pursue and generally low priority). Get in touch with a police officer who deals with financial fraud (not a beat bobby) and offer him every assistance - don't expect him to do all the work! (He will have a dozen other cases already piled up on his floor and he needs another like a hole in the head. Try to persuade him that he should take up this case because it involves a significant sum and will be relatively straightforward because the evidence will be available in terms of paid cheques from the employer and their deposit into the employee's bank account.)

Can you be sure this employee alone is responsible?

Do you need to do any work to check whether anything else is going wrong?

Be careful about interviewing the employee. Unless this is done by the police (or someone with a very good understanding of the appropriate procedures) you will make prosecution of the employee more difficult! In other words - leave the employee alone - let the police interview him on tape and under caution with his solicitor present.

Presumably you will be instructed to assist your client to identify bogus 'transactions' and quantify the loss. Think carefully about how you handle the client in this connection (bearing in mind he may be minded to blame anyone but himself for the loss and you look like a handy scapegoat!).

Does your client have insurance against theft by an employee?

Can you advise the client about tax relief in relation to the monies stolen?

Endeavour to get the client to see you as a useful ally at a difficult time - rather than as someone to blame. Remember all sorts of emotional stresses will be happening now in the client's workplace. People may be feeling betrayed, under suspicion themselves, guilty / stupid themselves for failing to spot what was going on, etc. You are walking on eggshells when dealing with them!

Finally, do you need to have a quiet word with your PI insurers?


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12th Feb 2008 22:16

And another thing . . .

When trying to persuade the police to act you should also point out that the employee was in a position of trust and his betrayal of that trust will be an aggravating factor.

Another factor may be the relative impact on your client's business - a £20,000 loss to a small business is more likely to merit investigation than a £20,000 loss to a big company.

Please don't take the line of, "I pay my council tax so you have to act where there has been a crime" (because the police do not, and cannot, investigate every crime reported to them - which is why they set priorities and fraud is not a priority when compared to violent crime, drug crime, domestic burglary, disorder on the streets, etc., etc.).

The employee may be guilty of theft (s 1 Theft Act 1968), false accounting (s 17 TA 68), obtaining a money transfer by deception (s 15A TA 1968), and /or fraud (ss 1 & 4 Fraud Act 2006, if committed after 15 January 2007).

The police will sometimes investigate employee fraud / theft cases involving only a few thousand pounds, however the larger the amount (other things being equal) the more likely they are to act.

Remember it is no part of their duty to investigate an offence in order to assist your client's claim against the alleged offender!

Remember also that if the police do investigate then what they will do will be a POLICE investigation. Neither you nor the client will be in a position to influence what they decide to do (or not to do) or when and how they do it (except by sweetly offering to assist them in various ways and so gently nudging them in your preferred direction!).

You say "a pretty significant sum", do you mean over £100,000?

If you cannot get the police to act, suggest the client writes to the Chief Constable of the local force (i.e. normally the force for the County in which the crime was committed) at Force HQ briefly outlining the crime and requesting a police investigation of it. Include brief mention of the factors which ought to make it higher than normal priority to the police. That will get the matter officially logged and the police will either act or have to formally explain why they are not.

Only if that fails consider writing to your MP.

I presume the employee is not himself a member or student of a professional body. If he is, you (or the client) should also report the matter to that body.


P.S. As always, do get the client's consent before disclosing any information to third parties (including the police and the client's solicitors). The only exception to this is for reports to SOCA under PoCA 2002 and MLR 2007.

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15th Feb 2008 08:09

Sacking a client if you did work for me and I complain about the fee you then give me a credit note for the full charge? So I get the work for free? I am amazed. Why not sack the client but insist the work is paid for?

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13th Feb 2008 13:01

re the planet rock thing
perhaps you could come up with a consortium of general practioners who could come up with a workable business model for a digital music station. I wonder how rock and roll interspersed with adverts for accountants and sporadic random accounting and tax tips would work? Who is the chris evans of the accounting world who could engage the interest of the general public? Perhaos you could work out a subscription model for suitable feeds into office buildings.

On the other hand I gathered that not many are listening to digital radio - preferring instead podcasts, sky radio, and good old fashioned radio stations.

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