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Retired accountant refused ‘unethical’ external review costs

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A retired chartered accountant has escaped punishment from the ICAEW after he flatly refused to pay the “totally unethical” extra fee of £1,000 for an external follow-up practice review unless it was at the Institute’s expense. 

31st Oct 2022
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Named only as Mr A, a chartered accountant was let off any sanction after the  Institute of Chartered Accountants in England and Wales (ICAEW) disciplinary committee took into account his age, health and the fact that his business has closed down and his clients have gone elsewhere. 

As outlined in October’s disciplinary orders, the tribunal even went so far as to brand the ICAEW’s pursuit of the retired accountant as “oppressive and unjustified”. 

A member of ICAEW since 1969, Mr A was first caught in the crosshairs of the ICAEW after a quality assurance department monitoring visit identified issues with his firm’s anti-money laundering procedures, client money regulations, statutory accounts and its error-laden annual return.

Firm told to bear costs of review

However, Mr A railed against the notion of paying an extra fee of £1,150 per reviewer per day for an external practice assurance meeting.

Mr A had previously explained in September 2020 that he could “ill afford” an external review after the pressures of the pandemic and lockdown restrictions led to the firm making a redundancy payment of £12,000 to one of their staff who could no longer come to the office during the first lockdown and who could not work from home.

Explaining in a letter to his case manager, he said he wanted to avoid wearing face masks and that there is “nothing to be gained from an external review” after already providing the ICAEW with requested information from the clients’ account. 

The case manager reminded Mr A that the practice assurance meeting uprooted a lot of compliance issues and warned him that, if he was not prepared to arrange an external meeting the issue may be referred to the professional conduct department. 

But Mr A dug in his heels, telling the case manager: “I am not prepared to accept a charge over £1,000 for an external review when I have made no mistakes or errors and you have all the information that I have available, apart from the expected bank trust letter”. 

'Your expense, not mine'

Despite repeated warnings throughout October 2020 from the case manager, Mr A regarded an external review unnecessary. 

He responded in December 2020 that the Professional Conduct Department (PCD) would only be welcome to visit the office after the end of the lockdown in the winter of 2020 “but at your expense, not mine”. He added, “You have requested it, not I.”

The back and forth continued into July 2021, when the investigation committee decided to escalate the matter to disciplinary action. 

‘Totally unethical’

With Mr A having retired and the clients passed over to other accountants, his wife put forward the chartered accountant’s case  in an email to the PCD in June 2022 that the ICAEW insistence of a visit and for the costs to be borne by the firm was “totally unethical”. 

“We accept that inspections are required, but without the stipulation that we, or any firm, should pay. Without such a demand, the visit would have gone ahead and this would have all been over a long time ago,” she explained

She said that by the time of ICAEW’s request for an external review, the firm was wrestling with financial difficulties, after the death of a number of clients, the lockdown causing some of the client’s businesses to close and a redundancy payment. 

“The ICAEW was perfectly aware of all these problems, yet continued to go ahead. Why? To what end?” she asked. 

Committee’s conclusion

The investigation committee pointed out that this level of non-compliance was akin to a severe reprimand sanction and applied for costs of £7,740. 

However, Mrs A pleaded that they couldn’t afford to pay any amount after having paid £100,000 into the firm since 2017 to keep the business running smoothly. Instead, she pushed back and said there shouldn’t be any sanction because her husband had retired, the business had gone and he had only nominally held a practice certificate. 

The tribunal sided with the retired accountant and decided against imposing a sanction, taking into account his age, health and the fact he is no longer in practice. It said that the inspection of the firm was “rendered pointless” because the firm had closed down and there was nothing to inspect and concluded that the continuation of the proceedings was “unjustified and oppressive”. 

While the retired accountant escaped a sanction, the tribunal suggested that he should be invited to surrender his practicing certificate. 

Jessica Brown from Blake Morgan said:

"The tribunal concluded that it should have been obvious to the investigating committee that the continuation of the proceedings was unjustified and oppressive as there was no practice to inspect, as Mr A had retired, the practice had been closed down, and Mr A had no intention of practising. It is not clear at what point in the proceedings the practice closed. Had this case been put before a tribunal earlier in the course of the case, prior to the closure of the practice and Mr A's retirement, the outcome may have been very different.

"The decision of the tribunal rests on it being impractical to order Mr A to pay for an external inspection of a practice that no longer exists. The question of whether it is unethical to order an accountant to pay for an external inspection remains.

"It is clear from Mrs A's response, on behalf of Mr A, that there were mitigating factors present regardless of the practice closure. The mitigating factors included that the inspection was not chosen by them, that the practice had diminished considerably in size and was experiencing financial difficulties, that they had paid over £100,000 into the firm since 2017, and that it had been necessary to pay a redundancy payment of £12,000 to a member of staff.

"However, Mr A had previously put these factors forward to the regulatory case manager almost two years prior to no avail. Mr A had also previously responded that he had already provided all of the information so that there would be nothing gained from an external review.

"The tribunal did not specifically take these mitigating factors into account in its decision however, they likely would have been taken into account had the practice not have closed down by the time it reached the tribunal. It is unknown what weight the tribunal would have given to these mitigating factors and whether it would have agreed with Mr A's view that the extra fee was unethical.

"Specialist legal advice and representation can assist in identifying and presenting relevant mitigating factors to optimise the outcome. Employing legal expertise at an early stage can look to resolving cases without them having to progress to the disciplinary committee, which could have saved two years of drawn out proceedings in this case.

"Furthermore, legal input could have assisted and advised the practice in relation to complying with AML procedures, client money regulations and statutory accounts which could have avoided the case ever arising."

 

Blake Morgan’s accountancy regulatory 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 (27)

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By rememberscarborough
31st Oct 2022 15:46

Glad I'm not a member of the ICAEW otherwise I might be questioning whether my annual subs were being spent in an efficient way....

Thanks (11)
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By Hugo Fair
31st Oct 2022 16:48

It's good to see that materiality is not a concept strange to the eagle minds of the ICAEW.

Did it not occur to them that, for instance, London Transport might not proceed with a case against a suspected fare-dodger if they were informed he was now physically impaired to the point of being unable to use any of their services?

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By ireallyshouldknowthisbut
31st Oct 2022 17:19

The ICAEW do seem increasingly heavy handed with respect to costs.

I fail to see why they need £250k a year people doing routine compliance work for them.

The old accountant sounds like he was in a mess (losing money in an accounting practice suggests major business issues), and could probably done with some constructive help winding his practice out at what sounds like an extended run into his 70's, rather than getting a kicking for being behind the curve on compliance.

After a lifetime of subs you would hope for a better exit.

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By Calculatorboy
01st Nov 2022 00:36

The icaew have well and truly shot themselves in the foot with this one . I am really looking forward to the day i deprive them of my hard earned cash

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By Duggimon
01st Nov 2022 09:41

It would be clearer who was at fault here if we knew at what point the costs were largely incurred in pursuing Mr A and at what point he decided he was retiring, because every other excuse and complaint put forward by him in defence seems pretty flawed given the outcome of his initial review and the failings identified.

If you operate within an institute and pledge to uphold the standards of that institute and they discover you are in fact ignoring swathes of the requirements you have agreed to, it seems perfectly fair that you should either relinquish your practising certificate or meet at least some of the costs of the follow up required to ensure compliance.

Indeed by joining the institute and operating under the practising certificate you have tacitly agreed to this already and turning round and saying this is unfair because I don't want to wear a face mask and I don't want to meet the costs of my own failures and also I have unrelated employment costs is pretty weak.

Of course, if he'd retired before the disciplinary action commenced then the Institute's actions in pursuing it are ridiculous, however I suspect that is not the case and in fact he only decided to close up shop seeing his position was completely untenable.

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Replying to Duggimon:
By ireallyshouldknowthisbut
01st Nov 2022 13:39

You make some good points about Mr A's responsibility if he wants to hang the words "chartered accountant" above the door. You have to meet the minimum standards, and if you don't, should be leaving.

We have all met the old accountant who has said "one more year", for many years longer than they should have, and it sounds like Mr A was in this club.

We don't know the whole picture of course and how much slack this chap already had, but its the vast fees the ICAEW seem to have now normalised that really stick in my throat. They are supposed to be a membership organisation, acting for members, not getting staff or third party consultants big paydays for giving members the ruler.

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By AndrewV12
01st Nov 2022 10:02

'A member of ICAEW since 1969, Mr A was first caught in the crosshairs of the ICAEW after a quality assurance department monitoring visit identified issues with his firm’s anti-money laundering procedures, client money regulations, statutory accounts and its error-laden annual return.'

Mr A has previous.

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By raju m
01st Nov 2022 10:20

Accountants are being hit by too many regulations, constant changes and tax Return roundabouts.
They are in a completely no win no win situation. Most accountants are looking forward to giving up and calling it a day.!!!!!!!!!!!!!! Raj Mehta

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By Postingcomments
01st Nov 2022 10:23

Another month and another old buffer failing to keep up to speed, crashing his practice and pleading poverty.

If you are an ICAEW and can't afford to retire before you get old, you have been doing it all wrong.

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By sammerchant
01st Nov 2022 10:27

As a member of the ICAEW, I think the costs of any disciplinary hearing should be borne by the Institute. If the ICAEW finds members guilty, they should be penalised appropriately, taking into account not just the severity of the offence but also the ability to pay of the disciplined member. A fine of £10,000 may be quite insignificant to a partner in a large firm, but could drive a sole practitioner out of the profession, thereby depriving him of a means to earn a living.

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Replying to sammerchant:
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By Ian McTernan CTA
02nd Nov 2022 15:46

Common sense. It'll never catch on.

Fines and charges should be based off turnover or profit. Partner in a big firm £1m a year, small practice might be 50k a year. 10k to one is 1%, to the other is 20% and potentially ruinous.

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By Mr J Andrews
01st Nov 2022 10:48

So many ''could haves'' and ''would haves'' - a classic pluperfect subjunctive article with the fitting end result that an invitation ''should'' be made to surrender the practice certificate.
Mr A appears a man down but not quite kicked.

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By John Wheeley
01st Nov 2022 10:59

I am so pleased that I gave up my membership of ICAEW nearly 20 yeras ago.

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By Paul Crowley
01st Nov 2022 11:19

Outstanding work by the ICAEW?
He needed help or encouragement to retire. The ICAEW should be about help and education for its members, not harassment, costs, penalties, and public humiliation. Did any client suffer or lose money?
But once no longer acting for clients, this really should have been quietly dropped
At least the committee could see the pointlessness of continuing action against a dead practice
Maybe that committee should help HMRC with seeing the pointlessness of MTD

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Replying to Paul Crowley:
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By sammerchant
01st Nov 2022 11:38

A bit like going down to the battlefield and bayoneting the wounded!

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Replying to sammerchant:
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By Dib
02nd Nov 2022 13:25

You mean auditing. ;o)

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Replying to Paul Crowley:
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By raju m
01st Nov 2022 12:26

Smaller practices are an easy target for ICAEW, just like it is for HMRC. Raj

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By Trevithicks_Piston
01st Nov 2022 11:23

Cripes! It sounds like the poor sod was attacked by Daleks!

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By Marlinman
01st Nov 2022 11:25

I certainly won't be continuing my membership when I retire. What a liability. A few years ago I read of a retired chap fined for not submitting his cpd declaration.

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By Winnie Wiggleroom
01st Nov 2022 12:39

"Specialist legal advice and representation can assist in identifying and presenting relevant mitigating factors to optimise the outcome. Employing legal expertise at an early stage can look to resolving cases without them having to progress to the disciplinary committee, which could have saved two years of drawn out proceedings in this case"

And how do you think the poor beggar could afford to pay for that

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Replying to Winnie Wiggleroom:
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By Justin Bryant
01st Nov 2022 14:20

Yes; what a great big overlooked contradiction that is.

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Replying to Justin Bryant:
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By Paul Crowley
01st Nov 2022 15:23

But this case really is so very rare as to be possibly unique in the last 5 years.
No penalty and no costs

As a member I know full well the cheapest option is to accept whatever penalty can be agreed cos a case going to committee always comes with outrageous costs
Costs being 7 times the penalty is often the case

The legal representation is all about trying to reduce the outrageous costs

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By STONEFIELD
02nd Nov 2022 09:13

I was a member of the ICAEW until after I sold my small practice (I should have resigned earlier). I decided that the Institute were completely uninterested in assisting small practitioners and only interested in making money out of them. These days there is little commercial or professional benefit in being a member. A small practitioner (after qualifying) is better of joining the ICPA or similar body. The benefits far outway anything the Institute provide in terms of training, technical help and support and PII.

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Replying to STONEFIELD:
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By Tom 7000
02nd Nov 2022 09:35

Isnt it sad that more and more people feel like this

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Replying to Tom 7000:
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By STONEFIELD
02nd Nov 2022 12:15

Yes, it is.

Just look at the old Economia magazine. Useless and largely irrelevant.

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Replying to STONEFIELD:
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By Paul Crowley
02nd Nov 2022 13:16

Accountancy (the free member magazine) was 'sold' and immediately failed cos nobody wanted to pay for a formerly free magazine

Even worse was Accountancy TV thing that the bodies just abandoned

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Replying to Paul Crowley:
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By sammerchant
08th Nov 2022 13:10

And no one held to account for the colossal waste!

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