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What to do when an engagement shows signs of ‘scope creep’

7th Feb 2024
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Initor Global UK provides premium outsourced services to UK accountants and businesses.

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When entering into a new client relationship, or undertaking additional work for an existing client, accountants will know the importance of issuing a letter of engagement setting out the terms of service, scope of work and the fee a client must pay. But what happens when an engagement requires more resources than expected? Or when clients require services outside of the contracted levels?

In this blog we discuss some of the warning signs an engagement may be experiencing ‘scope creep’ and how Initor Global customers have successfully used outsourcing to manage such engagements, retain clients and increase profit margins.

Using a fixed or subscription-based fee makes quoting for work straightforward for accountants and the fee is easily understood by clients. There is scope to improve profit margins through investment in technology and improved processes (including outsourcing work), reducing the amount of time taken to complete recurring tasks. However, using a fixed fee or subscription approach means the risk of completing an assignment within the estimated time lies with the accountant. Accountants can often spot ‘red flags’ at an early stage in a new client relationship where the scope of engagement may not be suitable to the client’s circumstances. Some examples brought to our attention by Initor Global customers are shown below.

Multiple questions and requests for additional support from a client

The ongoing discussions with clients around the scope of work, the level of fees and client expectations can be stressful and time consuming. Some accountants find their initial assessment of the resources needed to deliver an engagement and keep their clients satisfied can quickly change. Warning signs an accountant may have underestimated the resources needed to deliver an assignment include the frequency of contact needed for a client seeking ‘quick advice’ or a service not covered by the engagement letter.

A good example of this is where an accountant is engaged to provide accounts preparation and related services to a limited company. The accountant acts on behalf of the company to prepare accounts, files them with Companies House and submits the associated tax information to HMRC. Should a director of the company then seek personal tax services, such as the preparation of a self-assessment tax return, the work is separate to the engagement with the limited company and requires a different assessment of risk and fee scale.

To overcome these scenarios, an accountant will need suitable clauses in the engagement letter to cover the availability of ad-hoc services and advice, as well as arrangements for additional fees to be charged and any new engagement terms required. Accountants should notify clients when the ‘ad-hoc’ clause has been activated and that additional fees will be charged. As with any contractual arrangement, the accountant will need the client's agreement to the additional work and fees in writing.

It is also worth highlighting that where an accountant undertakes work outside the scope of engagement agreed, they expose themselves to the risk of legal action or compensation claims from a client should any issues arise from the (additional) work completed. Maintaining the protections provided by an engagement letter is essential.

Information provided by a client is incomplete

Accountants find some clients wish to maintain their own accounting records and require specific services only at key points in the accounting period or tax year. While this may be appealing to accountants using a fixed fee or subscription-based engagement model, problems can arise where the client does not meet their responsibilities to maintain adequate accounting records.

The provision of incomplete or late information by a client means the accountant is immediately under pressure to turn around work quickly, with additional, more expensive resources often needed to meet deadlines. Client errors may need to be corrected and additional information obtained from different sources to allow the accountant to complete their work to the required professional standard. Clients are often unresponsive to requests for information and fail to acknowledge the risk of fines or penalties for the late submission of information to regulators.

The engagement letter should clearly state the scope of responsibilities of the accountant and the client. Where a client does not meet their responsibilities, the accountant requires a mechanism to charge additional fees, usually activating any ad-hoc clauses in the engagement letter. The accountant must manage such client relationships carefully, ensuring clients are reminded that responsibility for any fines or penalties incurred for the late completion of work due to inadequate record keeping lies entirely with the client themselves. Where deadlines are missed, the accountant should carefully consider whether the client should be disengaged given the risk of non-payment of fees and additional resources needed to complete an engagement.

Disputes and inconsistencies

While engagement letters state the scope of work required to complete the assignment, clients may dispute the level of work required for delivery. There may also be a gap in expectations about the extent of work to be completed within the agreed fee, especially where the client has sought information from the accountant which they perceive as formal advice which is not provided in writing. Clients may also make it difficult for accountants to complete their work, by providing inconsistent instructions or not providing information at all. Accountants should regularly review how an engagement is progressing and that the terms of engagement agreed remain appropriate to the client’s circumstances.

Using outsourcing to ensure assignments are delivered effectively

Many accountants enter engagements knowing that margins are tight and that turnaround times to deliver work are challenging. Progressing work efficiently is essential to delivering the engagement in accordance with agreed terms. Accountants with high volumes of work to deliver at peak periods, or ad-hoc work which arises unexpectedly, can secure significant benefits from outsourcing work, including costs which are typically 50% less than the equivalent UK resource and a flexible workforce who will work tirelessly to meet looming deadlines. The outsourced supplier can also alert the accountant where work takes unreasonably long timescales to complete due to the limitations of information provided by a client.

If you are an accountant looking to improve the management of your client engagements, increase margins and improve the quality of services provided, you can book a video call with one of Initor Global’s expert advisors using this link or send an email to [email protected]. You can also read our detailed blog on how our customers are using engagement letters to drive profitability and growth.