Small fine for numerous client money regulations breaches
Sole practitioner Alfred Lote faced an ICAEW client money regulations disciplinary tribunal and came away with a fine of £250 and a severe reprimand.
Worcestershire-based Lote’s financial difficulties caused the tribunal to slash the costs sought by the Investigation Committee from £12,949 to £2,750, which the defendant will have to pay in addition to the fine of £250 over a 12-month period.
An ICAEW practice assurance monitoring review on 23 July 2013 revealed a number of occasions where Lote had banked tax refunds received on behalf of his clients into his office account, in breach of the ICAEW’s Clients’ Money Regulations (CMR).
The Quality Assurance Department also found Lote had not informed all his clients in writing of his firm’s complaints procedure and the basis of charging fees.
According to the ICAEW tribunal, Lote had:
- On 195 occasions over a seven-year period paid client money (tax refunds) amounting to over £211,000 into office account
- Failed to maintain adequate records of transactions in relation to client account
- Failed to reconcile client account every five weeks between July 2013 and May 2014
- Withdrew over £28,000 from client account, without the client’s’ authority
- Issued an accountant’s report in March 2014 and failed to correct similar errors identified at a QAD review of July 2013 in respect of the previous set of accounts
- Promised to amend his standard client letter in July 2013, but had not done so when he had a follow-up review in April 2014.
Lote apologised for his failings in his 5 February letter to the ICAEW: “I know that I have not done things by the rulebook and I expect (sic) any punishment that you wish to inflict on me but I have always put my clients first and tried to give them a good service."
The tribunal found that the errors were “borne out of inefficiency and incompetence rather than deliberate wrongdoing” and the sums involved in the CMR failures, although persisting for a long period, were modest.
The tribunal stuck with the starting point for such an offence which is a severe reprimand, but imposed a £250 financial penalty, due to the defendant’s means and the nature of his errors.
Expert commentary: Chris Cope from the Accountants National Complaint Services Limited (ANCS)
"Having over the past 30 years handled in excess of 700 disciplinary cases on behalf of accountants of all denominations, one does, from time to time, encounter cases where the outcome appears truly astonishing. That was my reaction when I read Lote’s case. He might have achieved such an excellent outcome had he attended the hearing or been legally represented. But Lote chose to stay away and was not represented.
Lote’s office account was frequently overdrawn and close to its limit of £3,000. He had paid tax refunds, which did not belong to him, into office account and had then delayed paying clients. Had he done so in a timely fashion (and, of course, the money should never have been there in the first place), his overdraft facility would have been breached.
Lote’s unconvincing explanation was that he believed that the client money regulations only applied to investments.
In July 2013, Lote agreed to appoint an alternate. He had not done so by the date of the follow-up visit of April 2014.
Not only did Lote not keep records of money paid into and out of client account, but when asked to produce a reconciliation, he was unable to do so.
When asked about this, Lote said that he had reconciled the account in his mind, but had not done so in writing.
Withdrawing over £28,000 from client account and paying the same into office account without the authority of clients must be regarded as serious and not simply be described (as the tribunal did) as errors.
Regarding the accounts, Lote had been given specific advice about four errors. And yet, a year later, he repeated those errors.
In September and October 2013, Lote assured the Monitoring Unit that he would advise his clients of the basis on which fees would be charged and also of his complaint procedures. By April 2014, he had not done so.
However, the tribunal accepted that Mr Lote’s conduct was inefficient and incompetent as opposed to deliberate wrongdoing. Nor had there been any loss to clients.
I am surprised at the extremely modest level of fine and also that the tribunal took into account the defendant’s means when arriving at a figure of £250. Normally, the defendant’s means are taken into account when deciding whether he should be granted time to pay the fine by instalments.
The Investigation Committee sought costs of £12,949. The defendant said that this would cause him significant financial difficulty. Amazingly, the Disciplinary Committee reduced costs to £2750, an 80% reduction, without even indicating that the amount sought was unreasonable.
A remarkable outcome."