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Excluded accountant blames stupidity for client money breaches

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A Dunbar-based ICAEW member has been excluded from the institute after holding money in his client bank account, which did not belong to one of his clients, and transferring money from this account into his firm’s business account.

27th Jun 2022
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Paul Ronan was excluded from the Institute of Chartered Accountants in England and Wales (ICAEW) and ordered to pick up costs of £9,375 for breaching client money regulations after he had been disciplined three previous occasions for similar offences. 

According to June’s ICAEW disciplinary orders, Paul Ronan could only blame his “stupidity” for putting client money at risk by paying it into an overdrawn account when pressed during a professional conduct department (PCD) investigation.

The complaints

The practice owner agreed in November 2016 for another local accountant to transfer £5,000 to his client bank account on a temporary basis. By holding money not belonging to a client of the firm in the client account Ronan had breached ICAEW’s client money regulations. 

Then in August 2018 Ronan transferred a total of £5,000 from his firm’s client account into the firm’s business account without the knowledge of his clients, the client from the local firm or the firm. He said this was done to prevent the business account going overdrawn.

He repaid the money with interest of £125 days later, but this sparked another complaint against Ronan as transferring money without the clients’ knowledge breaks the code of ethics rules. 

Ronan admitted at the start of a quality assurance visit that he had borrowed the money for 10 days to cover a shortfall caused by his bank cancelling the office account overdraft facility during the recession. 

He had cashed in his pension in June 2018 but due to delays, he didn’t receive the sum until 3 August 2018. Up until that point, he had financed the practice working capital from short-term loans. 

The tribunal decision

The accountant had cooperated with the investigation and self-reported to the QAD, but what went against him was the fact that this wasn’t the first client money breach on the accountant’s disciplinary record.

There had been three other occasions where the accountant faced the disciplinary committee over breaches over a 16-year period. 

His first disciplinary was in January 2014, where he was severely reprimanded and fined £3,000 after he transferred between November 2005 and May 2013 a total of £85,000 from his client account to his office bank account. 

He was back in front of the disciplinary committee in November 2017 when he was pulled up again for client money breaches. He was severely reprimanded again and fined £5,000. It was a similar case, where he withdrew money from the client account without agreeing the amount with clients. 

The final disciplinary recorded against Ronan came in May 2021 when he paid a practice assurance penalty of £4,500 for client money regulation breaches. 

The tribunal concluded, “He has previously been reprimanded, severely reprimanded on two occasions, and fined. Yet he has clearly not learnt any lesson from those sanctions as he finds himself again being disciplined for breach of the Clients’ Money Regulations.”

Given Ronan’s history of client money regulation breaches, and with this disciplinary coming less than a year ago in May 2021, the tribunal explained that another reprimand or severe reprimand wouldn’t be appropriate and decided instead to exclude Ronan. 

Due to Ronan’s financial circumstances, the tribunal has agreed for Ronan to pay the costs of £9,375 in 12 instalments of £782.25. 

Sarah Price, an associate solicitor at Blake Morgan, said

“This is a clear example of inappropriate use of client money and an obvious breach of the Clients' Money Regulations.

“Mr Ronan had fully accepted the allegations, which meant that a full hearing was not required. However, even where the facts are admitted, there is still an opportunity to put forward a plea in mitigation to the tribunal.

“Mr Ronan did not have representation at the hearing. In this case, the tribunal indicated that it took some mitigating factors in to consideration. However, it was clear that Mr Ronan's previous disciplinary record played a major part in the tribunal's decision making process.

“In circumstances where the facts are admitted, members should not disregard the option of seeking legal advice. Specialist legal advisers can provide advice and assistance regarding mitigation, with a view to achieving the best possible outcome.

Sarah Price is an associate solicitor and a member of the accountancy regulatory team at Blake Morgan. The team is available to assist with any disciplinary, regulatory and compliance matters arising in the accountancy profession – click here if you require any of their services.

Replies (16)

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By Hugo Fair
27th Jun 2022 10:17

Bit harsh (given that he'd self-reported AND even paid voluntarily interest to the client for the brief period of 'borrowing') ... but his 'excuse' is itself stupid!

To claim that the reason you keep repeating the behaviour that you know is wrong (and for which you've been fined previously more than once) is due to your stupidity ... is a novel form of proof by example.

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By JCresswellTax
27th Jun 2022 10:44

The punishment for the incident on it's own was harsh, but when historical issues were taken into account, it moves from being stupidity to deliberate actions and harsher penalties then become justified!

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By Paul Crowley
27th Jun 2022 14:31

Best thing is to not repeat the same offence. Borrowing from the bank is cheaper than fines.

USA has the three stikes rule, but then their laws seem to be based on basketball and trying to bring back state sanctioned slavery. Prisoners make just so much for the military, electronics and others

https://www.ranker.com/list/products-made-by-prisoners/mike-rothschild

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By Moonbeam
27th Jun 2022 14:54

The previous incidents seem very strange to me anyway. Excluding him from membership, whilst the obvious penalty doesn't stop him continuing with similar breaches.

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Replying to Moonbeam:
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By Paul Crowley
27th Jun 2022 15:19

As of now nobody is ever going to check the client account ever again.
Good decision?

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By Moonbeam
27th Jun 2022 14:54

The previous incidents seem very strange to me anyway. Excluding him from membership, whilst the obvious penalty doesn't stop him continuing with similar breaches.

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By ireallyshouldknowthisbut
27th Jun 2022 15:50

What an idiot.

I never really understand why accountants deal with client money in the first place.

Seems like asking for trouble to me.

I even send back to the customer any cheques my older clients (its always very old clients who do this) send to me to send to HMRC. Any stray payments for tax come my way, they go right back to the client same day. Doesn't happen very often, but usually they pay HMRC my fee, and us the tax or something daft.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
27th Jun 2022 17:08

It was in times past a service offered to clients that rounded out the "accountant" experience but itself added no value.

A bit like travel agents offering travellers cheques, the commission barely covered the admin and grief but you offered the service to sell the holiday and the insurance where the real profits lay.

These days I would never have dreamed of even having a client account in a practice.

p.s. A bit of a shame , Mr Ronan's firm is George Spratt's former firm in Dunbar, I applied to them in 1985 for an apprenticeship (no vacancy at the time) as I had just bought a cottage at Cove, a pretty little hamlet 8 miles down the coast from Dunbar.

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By Paul Crowley
27th Jun 2022 17:50

Finally read the detail.
Odd
Complaint 1
In trouble because he held funds in HIS client account that some other accountant should have been holding. The owner of funds was not a client.
He was doing a favour for an accountant in confusion, with good intentions
Complaint 2
He took those funds out of the client account
Would a good legal guy suggest that he corrected the error?

In the old days I used to do solicitor's client accounts
Solicitors just could never get it right when they bought a house. The client account used
The clever one that understood that issue could not get it right because property bought with partner

Back to this case. He moved a comparatively small some for 10 days and paid 'client' a serious amount of interest
Not really at risk as the pension lump sum was coming, just not fast enough.

As others have said
Why have a client account? It is a millstone no matter how good the intension is of the practitioner.
Every error treated as if deliberate dubious activity.

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By Duggimon
28th Jun 2022 09:43

Would there have been any breach of the code of ethics if the £5,000 had been paid in to the main account instead of the client account and then repaid to the other firm's client when called upon?

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By unclejoe
28th Jun 2022 11:27

The guy admitted his error and cooperated with the tribunal, yet gets stung with over £9k in costs. Just how much work did the tribunal have to do to arrive at the decision? How do they justify the costs?

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By tonybrown
28th Jun 2022 11:37

I hate these penalties. Cases reported here relate to older accountants who are already struggling so why not show a bit of compassion. £5 mil fine for big boys has little impact on their lives. £10k to a guy who has had to cash in his pension to keep going is draconian. He had clearly lost the plot at some point, why not just ask him to resign. Wonder how many other accountants are running an overdraft after 30/40 years in the game.

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By HLB
28th Jun 2022 11:43

Yes, he repeatedly flouted the regulations and deserves to be punished but are these offences (where there was no personal gain) worse than signing a clean audit report for a FTSE company where it became pretty obvious later that said financial statements were far from being clean. I have seen members fined for such 'offences' but are they ever excluded?

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Replying to HLB:
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By Paul Crowley
28th Jun 2022 14:24

The big boys are in the club and know how this stuff works.

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By Ian McTernan CTA
28th Jun 2022 13:07

Having a client account is a recipe for disaster, which is why I don't have one. Never touch client money!

This guy didn't learn his lesson after two previous breaches and for once I agree with the decision (but not the costs, which are always way too much).

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By carnmores
28th Jun 2022 13:44

typical ICAEW sledgehammer to a nut. a bizarre judgement on the facts. And the fines ridiculously high.

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