Partnership dispute leads to disciplinary action
A joint managing partner and a partner of an accountancy partnership have been reprimanded and ordered to pay their share of a £120,000 disciplinary fine by an ICAEW tribunal.
The complex and acrimonious case involving alleged understated profits, financial difficulties and partner disputes took the ICAEW five years to investigate and resolve.
B LLP was an accountancy practice in Essex with offices in Chelmsford and Romford. E (the complainant) was based at Romford. The other partners (including defendants Jeremy Boyden and Ian Harris) were based in Chelmsford.
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A Limited was a corporate member of B LLP. Its only income was the share of the profits in B LLP. E, Boyden and Harris were partners in B LLP and directors and shareholders in A Limited.
There was a seriously acrimonious partnership dispute between E on the one hand, and Boyden and Harris (and presumably other partners) on the other, resulting from which E reported Boyden and Harris to the ICAEW. This resulted in disciplinary proceedings against Boyden and Harris.
The first three complaints against Boyden and Harris were identical. It was alleged that the CT600 for the year ended 31 March 2010 and 31 March 2012 for A Limited understated profits by £200,000 and £140,000 respectively, compared with the figures appearing in the accounts filed at Companies House. Accounts for A Limited to 31 March 2012 were understated by £140,000, being the share of profit allocated from B LLP.
There was a fourth complaint against Harris, namely that he accepted a loan of £100,000 from a client of B LLP without having sufficient regard to Section 280 of the Code of Ethics.
None of the seven complaints made any allegation of dishonesty.
The hearing extended over seven days (five in February 2019 and two in May 2019).
Both defendants, together with the investigation committee, were represented by external counsel. All complaints were denied apart from the loan complaint, which Harris admitted. Ultimately, the complaints were upheld.
There were various witnesses, including E, Boyden and Harris. Character references were also given orally.
The background was that B LLP ran into financial difficulty in 2010/11 due to the recession and payments made to ex-partners. Payment of wages and partner drawings became difficult. The business was threatened with administration.
The loan negotiated by Harris was not for his benefit, but for the benefit of the LLP. E had also invested some £40,000 in the LLP.
E discovered that there were discrepancies between the CT600s and the accounts. He concluded that the corporation tax liability had been under-declared by at least £70,000.
The investigation committee engaged forensic accountant Ms H, who gave evidence before the tribunal.
She found there to be a fundamental flaw in the preparation and subsequent scrutiny of the accounts. There had been no assessment of the recoverability of debts and in relation to work in progress, no assessment of what was billable. There were also issues in relation to an onerous lease.
At the end of the Institute's five-year investigation into the complaint, it was held that Harris was the main protagonist, and he had prepared the accounts and the CT600s.
In relation to the loan, it was said that he had misled the investigators as to the status of the client.
Harris was reprimanded and fined £10,000. He was also ordered to pay costs of £40,000.
With regard to Boyden, his conduct was considered to fall within the less serious category as no clients had been affected and there was no loss to HMRC. In fact, the shortfall in corporate tax had been made good.
Boyden was fined £3,000 and given a reprimand.
The investigation committee sought costs of £151,000. This included Ms H’s time recorded at 191 hours at an hourly rate of £445, or £85,000. The tribunal held that this was an excessive amount. The costs were reduced by £31,000 and divided by three.
It would appear that there was a third defendant (also a partner) involved with regard to these proceedings. His/her case has not been reported, presumably, because there is an appeal.
Chris Cope, solicitor and director of Accountants National Complaint Services Limited comments:
I have previously commented on the delays in bringing proceedings before disciplinary tribunals. My comments seem to have fallen upon deaf ears.
The details of this case as listed above relate to correspondence between Boyden and the Institute dating from November 2013. However, we do not know when the complaint was made: I suspect it was in late 2013.
It is frankly disgraceful that disciplinary proceedings did not commence until February 2019, some five and a half years later.
It is also surprising that the investigation committee decided to instruct external counsel, as opposed to one of its in-house lawyers. We do not know how much counsel would have charged the Institute. However, that would have been included in the figure of £151,000.
It was clearly a fairly complex case and therefore there was a need to engage forensic accountants, particularly as the complaints were denied. Nevertheless, it is astonishing that an expert should be engaged charging at a rate of £445 per hour. It is even more unbelievable that the expert spent 191 hours on the matter. Even if you factor out the expert costs of £85,000, the remaining costs totalled £66,000, which in itself is a considerable sum of money and probably greater than most disciplinary cases in recent years.
In any event, the disciplinary tribunal found that the amount claimed by the investigation committee was excessive. One would hope that this message will be well heeded by senior members of the Institute’s professional conduct department.
Overall, the case has cost two members of the ICAEW some £92,000 in fines and costs, quite apart from whatever legal costs they may themselves have incurred through representation. We do not know whether they had the benefit of insurance.
It is sad that a partnership dispute should end up before the disciplinary tribunal. The papers hint at one of the defendants having health problems, which is hardly surprising. Disciplinary proceedings inevitably take their toll, particularly those spread over seven days, which in itself is unusual. The five-year investigation would also have weighed heavily on all involved.
Richard is AccountingWEB's Practice Editor. If you have any comments or suggestions for us get in touch.