As part of AAT’s Accountable campaign, we look at how AAT investigators maintain high standards and protect the public.
Whenever Donna Drew meets new people and tells them she works as an investigator, the reaction is usually one of fascination. “They’re generally impressed,” she says. “Unless, that is, they’re an accountant!”
Drew works as a professional standards officer in AAT’s investigations team. While non-accountants probably assume her day job involves pursuing shady subjects and wearing lots of trench coats, the reality is slightly different. The investigations unit follows up complaints or allegations of unethical behaviour made against AAT members. This could range from serious financial crimes such as swindling clients, incompetence or the sadly all-too-frequent problem of operating without a licence.
By conducting reviews of AAT members (which can involve office visits) the investigations team plays a vital role in protecting businesses from rogue and inept accountants, maintaining the high standards the public has come to expect from accountants.
Here, Drew and her colleague, professional standards officer Adam White, talk us through four recent real-life investigations that ended in disciplinary action to help highlight the importance of maintaining high professional and ethical standards.
The following examples are real examples, but names have been changed.
CASE #1: NO ANTI-MONEY LAUNDERING (AML) COMPLIANCE
Olivia had been running her practice for 11 years. In late-2019, AAT randomly selected her for a practice assurance review. While visiting her office, AAT discovered Olivia prepared financial accounts for clients without any anti-money laundering procedures in place, such as conducting AML due diligence on clients, or providing AML training for her employees. The rap sheet didn’t end there – the investigation also found Olivia submitted tax returns without client approval, and hadn’t kept client files for at least six years (as required by the government). The investigation also unearthed some elemental but potentially damaging errors in Olivia’s work, too, such as declaring income and expenditure as “gross” in the P&L statement, rather than “net”.
Olivia’s lack of AML processes meant she posed a risk to the public, and could undermine confidence in AAT.
Key issues and outcomes
Olivia’s membership was terminated by AAT. However, she can apply for re-admission after two years. Here are some key lessons and takeaways.
- Revealed through a practice assurance review
Drew: “A practice assurance review is where we randomly select AAT members to assess their standards of service. We review around 5% of our licensed members every year, notifying them first so they can prepare paperwork. The review can involve either visiting the office (which takes up to a day), a two-hour telephone review or (during Covid-19) a remote review via video conferencing.
- Importance of AML
Drew: “Sadly, many members aren’t as aware of AML as they should be. We find many longer-serving accountants struggle with this, possibly because AML regulations were introduced relatively recently (2007) and they believe their old systems are adequate enough.”
- What you should do…
Drew: “If you’re unsure about AML procedures at your firm, contact AAT – we’re here to help with any compliance issues you may have. You can also check AAT’s Knowledge Hub, where you’ll find templates to assist with AML compliance. And if you feel your boss isn’t adhering to AML rules, ring or email AAT’s AML whistle-blowing helpline and speak to us anonymously.”
“Members aren’t as aware of AML as they should be.”
CASE #2: STEALING FROM CLIENTS
Nathan owned an accountancy practice. He was facing significant financial problems, which meant he couldn’t provide for his young family. He began to steal from his own company. Instead of filing VAT returns for his clients to HMRC, he pocketed these payments himself. He also excluded £33,000 from his tax return and inflated the turnover of one of his clients from £30,000-40,000 to £141,000 (so it appeared more profitable to the majority stakeholder). One of his clients would send him blank signed cheques four times a year, which Nathan would then make payable to himself to help pay off his debts.
A concerned client contacted the police, who arrested Nathan. Nathan’s theft devastated the finances of his clients. One company collapsed, while another had to pay HMRC thousands of pounds every month.
Key issues and outcomes
Nathan pleaded guilty to theft and fraud, and was sentenced to five years in prison. The judge’s verdict? “There was a massive abuse of power… I’m not satisfied [Nathan] is a man that can be trusted.” Nathan was also expelled from AAT.
- Abuse of position is rare
Drew: “Luckily, crooked accountants like Nathan are very rare. Most investigations involve non-intentional breaches.”
- Stealing is not the answer
Drew: “When accountants commit theft from their own company, financial problems are often the motive.
“We’ve also come across gambling problems. Sometimes people borrow money from their firms believing it can be paid back without anyone noticing.”
- Expelled from AAT
Drew: “If an accountant has a conviction for serious (drugs, human trafficking, terrorism) organised crime or is convicted of financial crimes, we wouldn’t approve their application to become an AAT member.”
CASE #3: INCOMPETENCE DUE TO PERSONAL PROBLEMS
When one of MAAT Anna-Marie’s clients received letters from a debt-collection agency (warning of a £400 HMRC fine) plus a £375 Companies House penalty because her company accounts had been filed late, she contacted AAT to complain.
AAT investigated Anna-Marie, finding that she’d shared confidential client information with third parties, had lost client records, and failed to issue letters of engagement.
It also transpired Anna-Marie was experiencing turmoil in her personal life, which she said had led to her late filing and errors. Unfortunately, Anna-Marie was not able to provide any documentary evidence to support her claims.
Key issues and outcomes
Anna-Marie was expelled from AAT membership for three years.
- Take action
White: “If you’re unwell or have personal problems that affect your ability to do your job, you need to ensure this doesn’t affect clients. Anna-Marie should have arranged cover [handing over the practice to an employee or another firm], or released her clients.”
- Document evidence
Medical notes would be a good example of documentary evidence.
- Expelled from AAT
White: “We obviously took Anna-Marie’s personal issues into account, but she needed to protect her clients. Instead, they were fined by both HMRC and Companies House. Such errors breached the AAT’s Code of Professional Ethics, making her a risk to the public.”
CASE #4: OPERATING WITHOUT A LICENCE
Amala had been an AAT member for nearly 10 years, and had provided accounting services to small businesses throughout this time. She did all this despite having never applied for a licence.
When AAT’s investigations team contacted Amala, she told them she hadn’t applied because she’d failed to pass the AML and ethics diagnostics tests six years previously. Since then, she’d been providing services to clients without a license or AML supervision.
Key issues and outcomes
Because she’d put her clients at risk, Amala was reprimanded and fined £1,861.
- Stay licensed
White: “Members providing self-employed accountancy services without a licence is our highest area of investigation. Most of the time it’s down to ignorance or oversight, such as members simply forgetting to renew their licence.”
- Pass the AML and ethics diagnostics tests
White: “If AAT members fail these tests, they can’t get their licence. However, they can resit the exams.”
- Fined £1,861
White: “This sum was based upon the annual licence fees Amala should have
paid over the past seven years.”
“Members operating without a licence is very common.”
CALLING ACCOUNTANTS TO ACCOUNT
Phil Hall is head of public affairs and public policy at AAT. Here, he talks about the need for accountancy to be regulated
Why do some AAT accountants operate without a licence?
Most do have a licence but for those that don’t, it’s mostly down to ignorance, rather than a willful attempt to avoid having one. Some people think that once they’re AAT qualified, it entitles them to call themselves an AAT-licensed accountant. Of course, it doesn’t and our professional standards team are pretty good at taking action where this happens.
How big a problem is it that some AAT members operate without a licence?
It’s not a huge problem but it is an issue that crops up time and time again so we need to continually monitor and enforce here to stay on top of it.
A far bigger issue is the third of accountants who are unregulated i.e. they’re not a member of any professional body, often completely unqualified and almost always uninsured.
The unregulated are responsible for two-thirds of agent related complaints to HMRC. Solicitors, doctors and nurses all have to be a member of their respective professional bodies so why shouldn’t accountants and tax advisers?
What’s the Government doing?
The Government has ignored this issue for a long time but is now proposing that unregulated accountants should hold professional indemnity insurance — something professional body members have been required to hold for decades.
It’s inadequate, does nothing to address the causes of unregulated advice and scarcely deals with the symptoms.
That’s why AAT is running the Accountable campaign, working for all accountants to be accountable by requiring anyone offering paid-for tax advice to be a member of a relevant professional body.
Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.