Disciplinary orders round up October 2018

Laptop computer with books, pen and yellow legal pad
istock_pablohart
In association with
ancs
Share this content

October's ICAEW disciplinary orders features a "poorly worded letter" and a fraudulent film investment. 

Chris Cope from the Accountants Complaint Services Limited (ANCS) reviews these two cases from October's ICAEW disciplinary orders and provides expert commentary.  

Accountant Jason Bennett was reprimanded by the ICAEW in July 2018 after a client complained about an erroneous letter his firm sent to Barclays Bank and the preparation of an inaccurate accountant’s certificate.

After criticising his “poorly worded letter” that lacked transparency and accuracy, the ICAEW tribunal ordered Bennett to pay £10,000 costs and fined him £3,000. The costs were reduced after the defence argued against the “excessive” original figure, the “antiquity” of the complaints and the inordinate length of the investigation.

Bennett, an ICAEW member for 19 years, prepared the personal tax returns and sole trader accounts for the client, referred to as Mrs B, and also prepared the accounts of her two companies.

In August 2013, Mrs B complained to the ICAEW that Bennett had sent a letter on her behalf to Barclays Bank in March 2011 that included errors. She also claimed that he inaccurately prepared and signed an accountant’s certificate for her the following year and improperly prepared her personal tax return in 2013.

Bennett admitted the inaccurate accountant’s certificate, which he attributed to not checking the certificate prepared by staff more thoroughly before sending it.

The tribunal dismissed the tax return complaint because Bennett had acted on a direct instruction from the client to change the figures.

Letter to the bank

The central feature of the case concerned Bennett’s letter to Barclays Bank, where it was alleged that:

  1. He stated that Mrs B’s salary for the year ending 5 April 2011 from one of her companies was £5,700
  2. He based dividend payments on financial statements when the financial statements had not yet been prepared
  3. The dividend figures did not take into account her two companies’ corporation tax
  4. The dividend figures did not take into account mortgage arrears payable by Mrs B
  5. The dividend figures for Mrs B’s company were calculated without taking into account negative reserves of £14,465 as at 31 December 2009; and
  6. The dividend figures for the same limited company were calculated without taking into account negative reserves of £10,893 as at 31 December 2010.

The tribunal concluded that Bennett’s errors featured in the 10 March 2011 letter would not bring discredit to him when taken alone, but viewed together the complaint was upheld.

The tribunal noted that confusion could have easily been rectified in (a) and (b). In (b), for example, the letter to the bank claimed the monetary figures were based on financial statements when they were actually based on SAGE management figures, whilst in (a) Bennett should have said that the salary was “to be confirmed”.

The tribunal disagreed with Bennett’s decision in (c) not to include corporation tax on the basis that the letter’s purpose was to aid the bank’s assessment of the client’s future income.   

Sentencing

The tribunal hinged their sentencing on the fact that third parties, such as Barclays Bank in this case, should have confidence in the information provided by accountants.

The tribunal initially applied for £15,582 in costs. But it adjusted the amount to £10,000 after accepting the defence’s argument that the five-year investigation costs, together with 8.5 hours for report writing and a charge of £3,425.50 for file reviews were excessive.

Chris Cope, director of ANCS Ltd, said:

I need to declare an interest in that I represented Mr Bennett before the tribunal. A number of points:

  • The length of the investigation was excessive, largely due to Mrs B insisting that the ICA investigated yet more complaints, all of which were baseless.
  • The tribunal did not consider that Mr Bennett’s conduct should be regarded at the upper end of the scale in relation to sanction.
  • The figures in question were relatively small.
  • Of the three complaints, one was found not proved.
  • This was one of the last complaints considered under the old system where the chairman is a lay member and not legally qualified. In future, disciplinary tribunals will be chaired by Queen’s Counsel. Consequently, there will be no need for the tribunal (QC, lay member, and chartered accountant) to sit with an independent legal adviser.

* * *

Former Monaco-based accountant Norman Leighton has been excluded from the ICAEW after being found guilty of involvement in a fraudulent film investment scheme.  

Following his two-year suspended prison sentence in June 2016 at Birmingham Crown Court, Leighton stated that he recognised how his actions has brought the profession into disrepute. But arguing against the imposition of further financial penalties, he said that he must now live with the “opprobrium” of the criminal conviction, loss of reputation and the financial and personal costs it has involved.

The Crown Court heard how Leighton assisted four ‘film executives’ who devised the scheme that raised money from high net worth individuals keen on taking tax breaks the government offered to film investors.

By investing in a series of limited liability partnerships, the scheme originally presented an opportunity for these investors to reduce their personal tax liabilities, with no intention to cheat the revenue.

The executives for whom Leighton acted advised the LLPs to enter into ten-year agreements. The LLPs spent over £256m in the first accounting year on pre-production and development, but the judge said the scheme was “not all it appeared to be”.

The report said that although Leighton was recruited to provide legitimate services when the scheme was devised in 2002, it should quickly have become apparent that it was not legitimate.

The judge described a “complex and sophisticated tax evasion scheme” at the centre of the case. The group submitted tax returns containing false statements about the LLPs’ allowable losses, which it diverted and repeatedly circulated around other companies. Had the group succeeded in this, the judge noted that they would have cheated HMRC out of £98m.

ICAEW membership

Leighton attempted to relinquish his ICAEW membership, realising that the conviction would lead to his exclusion.

In a letter, Leighton informed the membership department that he was no longer undertaking work as an accountant. He was advised that he could not resign his membership as he was under investigation.

Leighton pointed to the confiscation proceedings which have resulted in him having to pay the court £150,000 as forcing him into a situation where further financial penalties would be unaffordable and highly prejudicial, especially as he was now retired. He also mentioned the stress the criminal proceedings had placed on himself and his family.

The tribunal ruled that although Leighton’s involvement in the conspiracy was less than the other four men, he still played a significant role. The tribunal excluded Leighton for bringing discredit on himself and the profession and ordered that he pay £2,500 towards the cost of the proceedings.

Chris Cope, solicitor, said:

  • It is remarkable how long it takes to bring matters to a conclusion. The conspiracy in which Mr Leighton was involved dates from the period January 2002 to August 2009. However, the trial did not take place until May 2016. It was another two years before the matter reached the Disciplinary Committee.
  • Although Mr Leighton did not appear before the tribunal and was not represented, bearing in mind that he now lives in France, one can readily appreciate why he did not attend. A conviction involving dishonesty and a suspended prison sentence will result in exclusion from membership.
  • We are not advised about the real cost of the disciplinary proceedings, only that Mr Leighton was ordered to make a contribution of £2,500.

You can find out more about Chris Cope and the Accountants National Complaint Service by visiting their website here.

About Richard Hattersley

Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

Replies

Please login or register to join the discussion.

avatar
31st Oct 2018 11:40

Stepping back from the details above (and ignoring Leighton who appears to be a fraudster), yet again the ICAEW have come down on the small guy, he was a plonker, but I would have thought the ICAEW would be all about looking after its members. The members are the ICAEW not the other way around, its the tail wagging the dog, Mrs B makes a complaint and thats it. I have an idea Mrs B never got her loan or what ever she wanted from Barclays bank, and Bennett carried the can. ICAEW never take into account, outstanding fees, demanding clients, deadlines (possibly Bank deadlines in this case), its the equivalent of a trade Union asking some of its its members to take pay cuts, redundancy, longer working hours.

The two cases above are poles part Jason Bennett wrote a poorly worded letter and got his facts all wrong, (possibly using the clients figures) and was fined £10,0000.
Norman Leighton who appears to be a fraudster was excluded from ICAEW and only fined £2,500 by ICAEW, I would guess the exclusion was the least of his worries.
Looking at the Bennett case it looks accounts were not prepared (outstanding fees ?) and he took figures from Sage Accounts (possibly Mrs B figures), unsure who prepared them. Though I have no idea why Bennett never sent in an amended letter to the bank.

Thanks (8)
avatar
By Tosie
31st Oct 2018 10:38

I can visual the scene demanding client, information not available to provide what was required, accountant stressed gives into clients demands. Bank who already have enough information from their own records use accountants letter as a reason to reject the loan. Accountant gets the blame. I know where my sympathies lie and the fine and costs awarded are totally wrong.

Thanks (6)
avatar
31st Oct 2018 10:53

As has been previously stated the size of the fines seems totally disproportionate.

Thanks (6)
avatar
31st Oct 2018 11:54

As with most of these cases, there is usually far more to it then we see, as charges are generally slimmed down to that which is most irrefutable and therefore more likely to lead to conviction.

Did this accountant cross the line and provide information he knew was wrong? The ICAEW took 5 years and decided he did.

Thanks (3)
avatar
31st Oct 2018 12:55

Such a shame that we don't get to find out the true name of Mrs B, I pity the next firm of accountants that has the pleasure of her as a client, not knowing her nature and history.

Briefly looking at a few of the other ICAEW orders...….number 5 practised for 14 years without a certificate resulting in fines and costs of about £6,150.
Number 8 practised for 5 years without a certificate, fines and costs of £2,317.
Number 10 practised without a certificate for 9 years with a penalty of £700.
With practising certificate fees at £335 per annum, I wouldn't call these penalties, they're more like an extended credit line with generous discounts for bad behaviour. If the firms/individuals didn't bother with a practising certificate, then did they also not bother with the cost of PII, or CPD? As well as avoiding the ongoing admin time, costs and stress of general regulation, audit and quality assurance visits from the ICAEW.

There must be a tremendous amount of undisclosed background information, because on the face of it the decisions are ludicrously inconsistent and nonsensical.

Thanks (4)
avatar
31st Oct 2018 16:40

Agree with all of the above contributors particularly the lack of detail to form a balanced opinion. The majority of the numbered points seem to relate to the dividend figures quoted with an inference (and that's what it seems to be) that some of the dividends were "illegal" i.e. not out of cumulative retained profits.

As far as I'm concerned a dividend is still a dividend if it was intended as such when drawn. It is not down to accountants to redefine it as say a director's loan or remuneration. Clearly the client needs to be made aware of the Companies Act but it's not down to the ICAEW to override the accountant's decision.

The more I read of these cases the more I think "but for the grace of God".

Thanks (3)
avatar
By Tosie
to thomas34
01st Nov 2018 10:22

The more I read of these cases the more I think "but for the grace of God".

I echo that.

Thanks (1)